Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

EAST LOTHIAN DISTRICT COUNCIL (MUSSELBURGH LINKS, ETC.) ORDER CONFIRMATION

Mr. Secretary Younger presented a Bill to confirm a Provisional Order under section 7 of the Private Legislation Prodecure (Scotland) Act 1936, relating to East Lothian District Council (Musselburgh Links, etc.): And the same was read the First time; and ordered to be considered upon Tuesday 16 July and to be printed. [Bill 187.]

SHETLAND ISLANDS COUNCIL ORDER CONFIRMATION

Mr. Secretary Younger presented a Bill to confirm a Provisional Order under section 7 of the Private Legislation Procedure (Scotland) Act 1936, relating to Shetland Islands Council: And the same was read the First time; and ordered to be considered upon Tuesday 16 July and to be printed. [Bill 188.]

PETERHEAD HARBOURS (SOUTH BAY DEVELOPMENT) ORDER CONFIRMATION

Mr. Secretary Younger presented a Bill to confirm a Provisional Order under section 8 of the Private Legislation Procedure (Scotland) Act 1936, relating to Peterhead Harbours (South Bay Development): And the same was read the First time; and ordered to be read a Second time upon Thursday 18 July and to be printed. [Bill 189.]

Oral Answers to Questions — ENVIRONMENT

Regional Water Authorities

Mr. Hoyle: asked the Secretary of State for the Environment how many representations he has received regarding the proposed privatisation of the regional water authorities.

The Minister for Housing and Construction (Mr. Ian Gow): Twenty-nine, Sir.

Mr. Hoyle: Why does the Minister persist in putting the public's health at risk by water privatisation? Does he not realise that water is an essential commodity which cannot be substituted? What will happen to investment in the water authorities, especially with respect to replacing sewerage and recreation centres? Does this mean that the

water supply will be in the hands of the City of London and foreign investment? Why does the hon. Gentleman persist in this folly, especially as the public are outraged by this privatistion?
Does the hon. Gentleman not realise that if he continues with this programme the public will rise up and give him a black eye? That is no trivial matter.

Mr. Gow: I am aware that water is essential to human life. The House would do well to remember that 25 per cent. of the British people are already provided with fresh water by the private water companies. Hon. Members should understand that many great benefits will accrue to the water industry and, above all, to customers if we can bring a measure of privatisation to the water industry. The Government intend persevering in their examination to ascertain whether they can bring some free enterprise to the industry.

Several Hon. Members: rose—

Mr. Speaker: Order. Long supplementary questions lead to long ministerial replies, which cannot help Question Time.

Sir John Page: Is my hon. Friend aware that private water companies are celebrating this year their 100th anniversary of supplying wholesome water to the people? Will my hon. Friend consider, during discussions on privatisation, the possibility of using the legislation covering the water companies as a model for the privatisation of the authorities?

Mr. Gow: There could be no better example of the success of the private water companies than the successful private water company of which my hon. Friend is a director. During our examination of privatisation we shall certainly consider the lessons that we can learn from the successful private companies.

Mr. Kilroy-Silk: How many water authorities have been exempted from the EEC requirement which came into effect this month on the amount of nitrates allowable in drinking water?

Mr. Gow: Although that matter does not arise directly from this question, I can point out that I had a meeting yesterday with the Government's Chief Medical Adviser on the subject. I shall be announcing the decision on derogations shortly.

Mr. Stanbrook: If a decision is taken on that matter, will my hon. Friend bear in mind that it is desirable not only that costs should be kept as low as possible but that there should be no great variation of water prices throughout Britain? That would be most undesirable as regards past investment in the industry and what is available now. Such a variation might widen the gap between those areas that are fortunate in fostering investment and those that are not.

Mr. Gow: I shall certainly consider my hon. Friend's advice. I remind the House that among the advantages of privatisation will be the possibility that those who at present work for water authorities and, not least, those who are customers of the water authorities will become shareholders.

Mr. Cowans: Will the Minister reflect on the fact that water is far too important a commodity, to use his own words, to leave to the "whims" of the free market? If he


will not reflect on that, I am bound to say that the Labour party in power will return it to public control. If the private sector is so good, will the Minister kindly explain why the private firm that supplies Eastbourne charges more than the public sector?

Mr. Gow: It used to be believed, even by some of my right hon. and hon. Friends, that the ratchet-effect of Socialism was such that any threat to renationalise that which we denationalised should be taken seriously. I say to the House and to the engaging Labour party spokesman on water that a threat to renationalise that which we may denationalise is no threat.

Mr. Cowans: Eastbourne.

Mr. Speaker: Order.

Mr. Meadowcroft: Is not the present position unsatisfactory, in that those who supply water are not properly accountable as virtually all water authorities, with some notable exceptions, meet in private? Why would a privatised system be more accountable than the present system, which is hardly accountable to consumers? What protection will there be to ensure a pure water supply?

Mr. Gow: It is because the present organisation of the water industry, though greatly improved since 1979, is not yet perfect that we are examining the possibility of a measure of privatisation. I should have thought that the Liberal party, which claims to be the party of participation, would have welcomed the opportunity for more and more customers and more and more employees to become owners of the business. It is characteristic of the Liberal party — that band of visionary missionaries with neither vision nor mission — that it should make a wet observation of that kind.

Derelict Dormant Land

Mr. Steen: asked the Secretary of State for the Environment how many acres of publicly owned derelict dormant land now appear on the register of vacant land; and how that compares with the figures for each of the last three years.

The Minister for Local Government (Mr. Kenneth Baker): At the end of June 1985 the land registers showed 113,000 acres of unused or underused land owned by local authorities and other public bodies in England. Figures for the last three years are:

1982 95,000 acres
1983 109,000 acres
1984 114,000 acres

Those figures conceal the fact that over 21,000 acres have been removed since the registers started because the land has been sold or brought back into use.

Mr. Steen: In view of the immense amount of land stuck on the registers, which I believe is only the tip of the iceberg, will my right hon. Friend consider privatising public land, raising the necessary finance through the issue of industrial revenue bonds, and amending planning laws so that a national, wasting asset may be put to excellent use?

Mr. Baker: My hon. Friend's proposals are interesting. We wish to persuade local authorities to use the land, because the public hoarding of land when nothing

is planned for it and nothing is happening to it is unacceptable. I shall certainly consider my hon. Friend's proposals.

Mr. Allan Roberts: Is the Minister aware that a great deal of public and private land from which the negative value has been removed by public money from the Merseyside development corporation is still standing idle because private developers will not go on it?

Mr. Baker: Merseyside development corporation is undertaking some of the best developments on Merseyside, as I think the hon. Gentleman will recognise. Members on both sides of the House will agree that it is a disgrace when public authorities—local authorities or nationalised industries—own land and are doing nothing with it, and that that land should be sold and developed.

Mr. Ward: My right hon. Friend will be aware of the pressure on housing land in the south. Is it not a scandal that those authorities are still holding on to land which in many cases is derelict? Has the time not come to give up persuasion and to set a time limit on how long those authorities may hang on to what is a valuable and, as my hon. Friend the Member for South Hams (Mr. Steen) said, wasting asset?

Mr. Baker: A third of the land is in the inner cities, and the Government are not sitting idly by. We have already issued four directions, and in June my right hon. Friend the Secretary of State said that he was thinking of giving warnings that he would issue instructions on a further 50 sites covering some 388 acres. We are moving energetically.

Mr. Freeson: Is not one of the biggest single obstacles to bringing derelict land back into use, particularly in inner cities, the Government's failure to remove the restrictions on the expenditure of derelict land grant? Have not hundreds of projects submitted by local authorities been held up by the Government's restrictions? Could such schemes not bring commerce, industry and housing, and private investment to match public expenditure, if only the Government would increase the permitted expenditure?

Mr. Baker: We have substantially increased expenditure on derelict land grants since we came into office. It has increased again this year to about £75 million a year. I agree with everything that the right hon. Gentleman said, and I hope that there will be an increase next year.

Office Development

Mr. Boyes: asked the Secretary of State for the Environment if he will make a statement on his policy towards the control of office development in the light of the report on office rents and rates 1973 to 1985, published in May by Debenham, Tewson and Chinnocks, a copy of which has been sent to him.

The Parliamentary under-Secretary of State for the Environment (Mr. William Waldegrave): I have read the report with interest.

Mr. Boyes: That was a pathetic answer. Does not an hon. Member who has tabled a question deserve an answer from a Minister? Should the Minister not have taken into consideration the comments by Mr. Peter Evans, the head of research at Debenham, Tewson and Chinnocks, who


said that office accommodation is cheaper now than for a long time, and that one cannot claim that the rates burden is causing rent rises because the relationship between the two is not proved, rents not having risen in real terms over the past few years? How does the Minister justify that statement?

Mr. Waldegrave: I read the report with interest, because it says:
As found in both the association's report and our survey, commercial rates in the inner London boroughs have risen by one of the lowest margins in the last 10 years and this can be attributed directly to the Government's rate capping controls.
For that and other reasons, I read the report carefully.

Mr. Dickens: Does my hon. Friend agree that the Debenham, Tewson and Chinnocks annual report is crammed with statistics and does not make good bedtime reading? Only one sentence in it could affect and influence the hon. Member for Houghton and Washington (Mr. Boyes)—that which said that many office accommodation owners are moving out of the London area, and perhaps into the hon. Gentleman's constituency. Will not economic measures influence such moves, with offices then going to the provinces?

Mr. Waldegrave: The move to constituencies such as that of the hon. Member for Houghton and Washington (Mr. Boyes) might be the kind of phenomenon that the report shows, because it shows that because of the rates office accommodation has been tending to move out of areas such as Lambeth and Southwark.

South-East (Housing Demand)

Mr. Proctor: asked the Secretary of State for the Environment what assessment he has made concerning the supply and demand for houses in the south-east of England.

The Secretary of State for the Environment (Mr. Patrick Jenkin): While my Department does not attempt to forecast housing supply and demand, it publishes much information on recent trends. The London and south-east regional planning conference—SERPLAN—is preparing an assessment of future housing requirements in the region.

Mr. Proctor: Is my right hon. Friend aware that one of the proposals to meet the alleged shortfall is that proposed by Consortiums Developments Ltd. to build a new town of 5,000 houses in my constituency between West Horndon and Bulphan? Is my right hon. Friend further aware that that proposal has led to universal and substantial all-party opposition from the Essex county council, from the London borough of Thurrock and from the villages of Bulphan and West Horndon and the local Members of Parliament? Will he take that into account when he makes his decision?

Mr. Jenkin: I am aware of the proposal to which my hon. Friend draws attention. The matter will be dealt with in accordance with normal planning procedures. There is a planning application before the Thurrock borough council, and it will be for it to take a view in the first instance.

Mr. Dubs: Does the right hon. Gentleman agree that in inner London there are many badly housed or homeless people who are too poor to compete effectively in the

private housing market and that his policies of cutting back on the public sector are denying many of them the chance of decent homes in their lifetimes?

Mr. Jenkin: The hon. Gentleman will recognise that it has been Government policy that the demand for new homes should primarily be met by the private sector and that the number of houses built by the private sector has increased substantially. The Government recognise that there will always be a proportion of the population unable to afford the full cost of private sector housing. For them, the housing associations and local authorities will provide a way to be housed. But it is up to the local authorities to make the best use of their resources and not, for instance, have up to 25,000 houses and flats empty for more than a year. If they can deal with that, they may be able to help some of the homeless.

Mr. Andrew MacKay: Is my right hon. Friend aware that there is no proof of the size of demand for new houses in central Berkshire to justify the foisting of an excessive number of houses on to the area completely against the wishes of the people, the local planning authority and local business?

Mr. Jenkin: I am aware of my hon. Friend's forcefully expressed views on this, which I know are reflected in those of a great many of those whom he represents. The Government will be making their view public on this shortly.

Dr. Macdonald: Is the right hon. Gentleman aware that, according to his Department's figures, there is enough land available with planning permission to continue building houses at the present rate in Essex until 1990? Is he aware, further, that the proposals by Consortium Developments to use green belt land is opposed by the leading Labour group on Thurrock borough council and that, furthermore, Thurrock borough council is considering plans to use derelict land which is available in Thurrock and can build a further 5,000 to 6,000 houses on it and that therefore Consortium Developments' planning application to misuse green belt land should be firmly rejected by his Department?

Mr. Jenkin: I am sure the hon. Lady recognises that if Consortium Developments appealed against a refusal of permission or a failure to give permission within the specified time, that appeal would have to come to my Department and that it would be wrong for me to express any view on the merits of the proposal to which she referred.

Mr. Soames: Is my right hon. Friend aware that in the south-east many people are extremely alarmed about the pressure on land for house building? That being so, will he assure the House that he will respect the integrity of the county plans, which are an important protection for my constituents?

Mr. Jenkin: Yes, indeed. The county structure plans are one of the mechanisms whereby it is possible to regulate the development of housing in areas which are already under pressure. My hon. Friend will know that the Government have made it abundantly clear again and again that they do not wish to see development on the green belt, where the protection should be permanent, and that they do not want to see good agricultural land taken. At the same time, it has to be said that there is a demand for housing in the south-east, as there is in other parts of


the country. It is our policy to make sure that sufficient suitable land comes forward for that purpose to meet the demand.

Mr. Simon Hughes: Given that incomes in my constituency average about £5,000 and that the average price in the private sector is £39,000 for a flat and £48,000 for a terraced house, will the right hon. Gentleman give some thought — given that he accepts the demand for low-cost homes for sale in docklands, especially from young married couples — to introducing new schemes and methods of finance so that people can live where they work and come from and not be forced to move from the area when the demand is there, the land is there and the supply could be there as well?

Mr. Jenkin: I understand the hon. Gentleman's point, and he knows of the various low-cost home ownership schemes promoted by the Government. He also knows that in his constituency the London Docklands development corporation has been among the foremost in making use of those schemes so that his constituents can occupy homes close to where they have always lived on land which for many years has lain derelict. I hope that the hon. Gentleman approves of that.

Mr. Squire: Despite comments from some of my hon. Friends, does my right hon. Friend accept that in parts of east London and south-west Essex there is considerable unmet demand for houses to buy? That must be taken into account when he considers these policies, because many young people are being driven from where they wish to live.

Mr. Jenkin: I certainly take most careful note of what my hon. Friend said. It reflects my impression, as I also have a constituency in that area.

Mr. John Fraser: Is the Secretary of State aware that in Greater London the average price of a pre-1919 terraced house is now almost £50,000, which is twice the national average and well beyond the means of many needy first-time buyers? Is he further aware that that extremely high price is a reflection of the 1,000 per cent. increase in the south-east in land prices since the Government took office? Does he agree that we have, not a housing policy, but a speculators' bonanza? Will he now engage in an exercise of positive planning to identify private land, along the lines suggested by my hon. Friend the Member for Thurrock (Dr. McDonald), which can be used for private housing, without raping the green belt for private profit?

Mr. Jenkin: The Government certainly want to see the maximum possible use of inner city land that is available for housing for that purpose. However, one of the best ways in which inner city authorities, particularly those in London, can meet the needs of the families to whom the hon. Gentleman referred is to bring into use by homesteading or other ways the many thousands of empty houses and flats that they have on their books. It is a scandal that so many should be allowed to remain empty for so long, and that homeless families must then be put into bed-and-breakfast accommodation.

Mr. Speaker: Order. I again appeal for brief questions.

Liverpool (Rates)

Mr. Parry: asked the Secretary of State for the Environment if he has any plans to meet Liverpool city council leaders to discuss the council's recent decision about rates.

Mr. Patrick Jenkin: No, Sir.

Mr. Parry: Will the Secretary of State at least meet elected Members of Parliament to discuss this critical position and consider meeting council leaders? Meantime, will he ask the district auditor to withdraw the letter that has been sent to councillors who are defending jobs, services and rates in Liverpool? The right hon. Gentleman knows that the previous Tory-Liberal coalition left Liverpool city council in a mess, because he saw that for himself. Is it not a disgrace that councillors could be banned from office or gaoled for carrying out their pledges to their citizens?

Mr. Jenkin: The district auditor is completely independent of central Government, which has been the case since the office was first established 150 years ago. I therefore have no power to control him in the performance of his duties. However, it is a complete fallacy to imagine that the problems which now beset Liverpool city council are all the making of its predecessors. The present councillors were given time last year to put their house in order, but they failed utterly to do anything about it. On the hon. Gentleman's first point, I shall be ready to meet Members of Parliament from Liverpool who would like to discuss the matter.

Mr. Favell: Will my hon. Friend take this opportunity to remind the people of Liverpool that they are heavily dependent on the charity of taxpayers in other areas, and that many of those hard-working people resent their money being poured down the bottomless hole which the leaders of Liverpool city council seem determined to create?

Mr. Jenkin: The Government certainly think it right to give substantial help to Merseyside in general and Liverpool in particular. We look to Liverpool city council to do more to help itself. Why does collecting the refuse in Liverpool cost the council double the number of rounds as, and 25 per cent. more staff than, in Birmingham, which is twice the size of Liverpool? That is an example of the woeful inefficiency of Liverpool city council.

Mr. Heffer: Will the Secretary of State repudiate what his hon. Friend the Member for Stockport (Mr. Favell) said? The people of Liverpool or elsewhere do not receive charity from anyone. [Interruption.] Although many of the problems were caused by the previous administration in Liverpool, the basic problem is that the rate support grant was cut drastically by the Government over several years, and this year the housing investment programme for Liverpool was cut. On that basis, is it not clear that a reversal of policy is needed? As the Government are already intending to go in that direction, why not start now?

Mr. Jenkin: If the Liverpool city council was prepared to tailor its budget so that it could live within its target, it could have rate support grant this year of £118 million. If it succeeded in living within its target, it could manage its services with a very modest rate rise.

Mrs. Currie: Does my right hon. Friend agree that the disastrous policies of the current Liverpool city council


serve only to make things worse in that sad city by deterring any potential employer from moving there? Will he say why people in south Derbyshire should have to fork out a ton of money to keep that council afloat on the Mersey when the money could be far better spent on our own ratepayers and taxpayers?

Mr. Jenkin: I entirely agree with my hon. Friend. I hope that members of the Liverpool city council will recognise, from what has been said from the Conservative Benches, that Parliament's patience is running very short. It is high time that they set about putting their house in order instead of continually standing with their hands outstretched, asking for more money.

Mr. Alton: Is it not the case that, by budgeting for £100 million above the income that the council will receive this year, the trouble has been brought on the heads of the councillors because they have practised policies of self-immolation? Will the Secretary of State give the House an assurance the he will not send a commissioner to Liverpool—he would be seen as the Prime Minister's henchman — but will instead allow the law to run its natural course? Will he also give assurances to council employees, who are worried about what will happen to them when the money runs out?

Mr. Jenkin: The employees of the council, including the members of NALGO and of the teachers' unions, have already made their anxieties extremely plain to the ruling majority on the Liverpool city council. The law will take its course as the district auditors' proceedings go through the normal process. I have no power whatever to send in commissioners. I hope that the Liverpool city council will take the steps that still remain within its powers to set its affairs in order.

Mr. Wareing: Does the right hon. Gentleman agree that the people of Mossley Hill do not need a Tory Member of Parliament when they have the hon. Member for Liverpool, Mossley Hill (Mr. Alton)?
Does the right hon. Gentleman agree that the people of Liverpool are trying to put their affairs in order? They have 17 priority housing areas. He has seen the housing problems on Merseyside, and will see them again during his visit next Friday. He refuses to acknowledge the real needs of the people of Merseyside and prefers instead to dissipate taxpayers' money on international garden festivals and Tate galleries for the north, which, while desirable, are not first priorities for the people of Liverpool.

Mr. Jenkin: The hon. Gentleman has been less than fair to those who successfully carried through Britain's first international garden festival. Nothing did more to lift the spirits of the people of Liverpool than that festival last year. They demanded that it should be opened again this year, and it has been. That in no way excuses the failure of the Liverpool city council to use the time that it was given last year to put its house in order, to seek to get more efficient services and better value for money, and so live within its income. It is because the council has failed to do that that it is now facing very serious problems.

Mr. Allan Roberts: Will the Minister accept some responsibility, as the Minister responsible for Merseyside—as was his predecessor — for the fact that hard drug-taking among young people has increased fourfold, while at the same time Government policies have created a

situation in which the leader of Liverpool city council, a JP and retired schoolmaster who has never broken the law in his life, is being turned into a law-breaker by the Government because he wants to defend services for the elderly, the disabled and the children in Liverpool?

Mr. Jenkin: The hon. Gentleman is seriously misrepresenting the situation. If Councillor Hamilton or any other councillor of Liverpool city council chooses to go outside the law and vote for a budget or rate which may or may not be illegal, that is a matter for the courts. That is their decision. It is in no sense a decision of the Government, and I repudiate wholly what he has said.

Council Housing Stock

Mr. Flannery: asked the Secretary of State for the Environment if he will institute a survey in all major cities of council housing stock to discover how much money necessary repairs will cost.

The Parliamentary Under-Secretary of State for the Environment (Sir George Young): My Department has already launched such an inquiry. On 11 April of this year my Department wrote to all local housing authorities in England asking them for information on the condition of their housing stock, and the expenditure they estimate is needed to put it in good condition. Local authorities' returns are now being processed and I hope initial results will be available by the end of this month.

Mr. Flannery: Is it not a fact that Sheffield launched such a survey, the results of which show that hundreds of millions of pounds are needed at a time when the trail of destruction of cuts by the Government is not only allowing the infrastructure to degenerate on a grand scale but is causing the superstructure to degenerate? When will the hon. Gentleman realise that, as a result of those cuts and the ensuing rate capping, it is impossible to provide services for people in the way that councils have been doing for years because the Government are cutting out the money that is needed to repair council houses, for which the waiting lists grow longer every week?

Sir George Young: On the first point, my Department is indeed analysing the results of the survey that Sheffield council has done. As I said, we hope that the results will be available by the end of the month. With regard to reductions in public expenditure investment in housing, as I am sure the hon. Gentleman knows, between 1974 and 1979 public sector investment in housing fell by 45 per cent., after allowing for inflation, and since we came to power it has fallen by 26 per cent. on the same basis, so I reject his criticism.

Mr. Galley: Has my hon. Friend had any discussions with the Halifax building society about the approval of repair schemes for pre-cast reinforced concrete houses in major cities or elsewhere? If so, can he tell the House what types of houses and what methods of repair may now be eligible for mortgages from the Halifax as a result of what seems to be an excellent initiative by the society?

Sir George Young: I was delighted to learn that the Halifax building society has agreed that PRC houses repaired under the NHBC schemes will automaticaly be accepted by the society for a mortgage. It has done this in advance of formal approval by the NHBC. I very much


welcome that initiative, which I think will be greatly welcomed by many owners. I hope that it will not be too long before other building societies follow in its wake.

Mr. Cartwright: Does the Minister recognise that the massive problems of dampness and condensation, which affect so many flats in constituencies like mine, result directly from the fact that many tenants simply cannot afford adequate heating in their own homes, particularly when they have to contend with wickedly expensive and inefficient heating systems put in during the 1960s? What steps are the Government planning to help local authorities to tackle those problems?

Sir George Young: As the hon. Gentleman knows, I visited his constituency and met a number of the tenants in some of the more difficult estates in Greenwich. If Greenwich borough council wishes to spend part of its HIP on improving the heating systems in local authority stock, the Government would not question its priority. We shall be discussing at a later stage with Greenwich and other local authorities which have difficulty what can be done through the newly established unit on urban housing renewal, which my Department launched a few weeks ago.

Mr. Frank Cook: *Having carried out this survey, will my hon. Friend also take the opportunity to examine the length of time for which council houses remain void in the Middlesbrough area in particular, and the outstanding rents that are owed in that area? If the two things were brought together, after 50 years of almost continuous rule by the Labour authority in Middlesbrough, the situation would improve for council house and other tenants in that region.

Sir George Young: I agree with my hon. Friend that if houses are left unlet there is a loss of income. Likewise, if rents are not collected, the local authority is also out of pocket. This may inhibit the level of service that it can provide to tenants and ratepayers. I hope that Middlesbrough will respond to the prodding of my hon. Friend and reduce the number of vacant properties and outstanding debts.

Mr. Campbell-Savours: Has the Minister seen the Royal Institute of British Architects' survey on local authority housing entitled "Decaying Britain", which shows that £10,000 million is needed to deal with the backlog of repairs and maintenance? Is the Minister aware that selling council houses will not raise that amount of money? Where will it come from? Will the Government cough up? Can the people who live in that housing be assured that these problems will be resolved?

Sir George Young: As of a few days ago, I understood that the policy, supported by a number of the hon. Friends of the hon. Gentleman, was to sell council houses. I am surprised to learn that this policy does not have the support of the hon. Gentleman. On the figure of £10 billion that he mentioned, I have seen a range of figures, from £10 billion up to £20 billion, from the Association of Metropolitan Authorities. When we have the results of the survey to which I referred we shall have a much clearer picture of how much money is needed to catch up with the backlog of repairs to local authority stock.

*The question was in fact asked by Mr. Holt. see Official Report, 11 July 1985, c. 1291.

Mr. Hill: My hon. Friend realises that repairs and maintenance are a serious matter for any city. The citizens who occupy council tenancies in Southampton are very angry with the Labour-controlled council because its repairs fund is underspent by £600,000, due mainly to a series of mistakes and omissions. Whatever may be the council's excuse, this is deplorable when one realises how much of the housing stock of some cities is in need of repair.

Sir George Young: I hope that the electors of Southampton will wreak their vengeance on a local authority which has failed to spend the resources that have been made available to it. It is worth reminding the House that expenditure this year on renovating public sector housing stock is running at over £1 billion. That is an increase on the 1979 figure.

Mr. Merlyn Rees: Does the Under-Secretary of State really need an inquiry to point out to him that the major social problem in many of our inner cities is the repair of houses, when people are constantly complaining about the condition of their houses? When the report is published there will be only one recommendation: that local authorities need money to help them to repair their housing stock.

Sir George Young: I referred not to an inquiry but, to a survey. We require up-to-date, accurate information about what is needed to put local authority housing stock into a better condition. My Department has asked for this information to be made available in time for the public expenditure round. When we have the information we shall be better placed to make decisions and solve the problems to which the right hon. Gentleman has referred.

Dr. Cunningham: Is the Secretary of State confessing to the House and to the millions of people who live in substandard and inadequate accommodation that the Government do not understand the problems and do not have the information? If, when the survey is completed, the overwhelmimg evidence that is already available from the Association of Metropolitan Authorities, the Royal Institute of British Architects and others is confirmed, will the Government provide the extra resources that are needed to help the millions of families who are living in squalor, dampness and freezing conditions?

Sir George Young: The problems to which the hon. Gentleman has just referred have not arisen only during the last four or five years. They are due to years of neglect and bad management of local authority stock. The Government are trying to obtain an up-to-date and accurate assessment of the resources that are needed. When we have that information we shall be better placed to negotiate the resources that are needed.

Halvergate Marshes

Mr. Lord: asked the Secretary of State for the Environment what progress has been made by the Government to save the Halvergate marshes.

Mr. Waldegrave: One hundred and eighteen applications have been received under the Broads experimental scheme, covering nearly 95 per cent. of the estimated total eligible grazing marshes. The scheme will run for three years and all the applicants have agreed not to plough or destroy their marshland and to manage it in


sympathy with conservation objectives. In return, they will receive an annual payment of £50 per acre. This take-up is very encouraging and should do much to ensure that this landscape is preserved.

Mr. Lord: I thank my hon. Friend for his answer. I am very pleased that the Halvergate scheme is proceeding so well. At the same time, I urge him to continue to seek a balance between agriculture and conservation, particularly in environmentally sensitive areas such as the Halvergate marshes.

Mr. Waldegrave: This experimental scheme is an outstanding example of co-operation between the Ministry of Agriculture, Fisheries and Food and the Countryside Commission. It may provide useful lessons for the development by my right hon. Friend the Minister of Agriculture, of his environmentally sensitive areas scheme.

Mr. Dalyell: Is not £50 an acre quite a lot of money to pay people for not doing what they ought not to have done anyway? Is this not an argument for the listing of sites of special scientific interest, just as buildings are listed?

Mr. Waldegrave: The problem in the Halvergate area is that there are very few SSSIs. We are involved there with general landscape matters. The interesting point is that the £50 per acre scheme is cheaper than the management agreements for which payments were being made, so it can be argued that the scheme is good value for money.

Mr. Budgen: Has my hon. Friend calculated by how much it would be necessary to reduce cereal prices to remove the financial inducement to plough areas such as the marshes?

Mr. Waldegrave: That would be a difficult calculation to make. The cereal problem is not the only factor. Pressure from the dairy industry meant that there were fewer dairy followers to go to grazing in the Broads, which meant that there was a further incentive to plough. It is a little more complicated than my hon. Friend believes.

Dr. David Clark: Will the Minister pursue the request of his hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), because the figures would be interesting? Further to the Minister's reply to the hon. Member for Suffolk, Central (Mr. Lord), who is PPS to the Minister of State, Ministry of Agriculture, Fisheries and Food, will he give the House a categorical assurance that no farmers in Halvergate are applying for grants to drain parts of that wetland?

Mr. Waldegrave: On the fundamental point, there is no disagreement between us. The Government have been among the leaders of those seeking more realistic cereal prices in the European Community. It would be rash of me to assure the hon. Gentleman — as I once assured the hon. Member for Linlithgow (Mr. Dalyell) — that no field in this area will ever be ploughed. However, we hope that the great majority of the area is now safe.

Capital Spending

Mr. Hunter: asked the Secretary of State for the Environment what representations he has received since 19 June from the Association of County Councils on capital spending.

Mr. Patrick Jenkin: None, Sir. But I met all the associations on 20 May to discuss the review of the capital control system and the chairman of the ACC wrote to me after that meeting.

Mr. Hunter: Bearing in mind the association's concern about the capital control system and the Audit Commission's condemnation of it, will my right hon. Friend comment on the strength of that feeling and assure us that he will give careful consideration to a recommendation that he either has received or is about to receive from the joint working party of the Department of the Environment and ACC officials?

Mr. Jenkin: The report that Ministers have received certainly confirms the need for a change in the system. It also identifies a number of options, which we have been discussing with the local authority associations. We seek two objectives. The first is to get better control of the totals of capital spending by local authorities, and the second, which is no less important, is to give local authorities greater certainty so that they can plan their expenditure more efficiently.

Mr. Jack Thompson: Is the Secretary of State aware that the present system of capital spending controls is causing absolute chaos for local authorities at all levels, because they do not have the opportunity to plan ahead? Is he aware that capital spending must be planned on as long a term as possible, yet some authorities are working on plans covering less than six months? Does the right hon. Gentleman agree that he should consider introducing a proper system of capital spending controls? One cannot criticise controls of some sort, but they must be on a longer-term basis.

Mr. Jenkin: I do not agree with what the hon. Gentleman has said, but I hope that he took some comfort from my answer to my hon. Friend the Member for Skipton and Ripon (Mr. Watson) on 26 June, when I said that we did not propose to take any action at present where we noticed that there was the prospect of an overspend on local authority capital spending this year. I know that the statement was widely welcomed by local authorities.

Housing (Elderly Persons)

Mr. Haynes: asked the Secretary of State for the Environment how many housing units built for the elderly were completed by local housing authorities in the years 1980, 1981, 1982, 1983 and 1984.

Sir George Young: The latest figures of completions of local authority dwellings for the elderly are 10,300, 7,600, 7,600 and 8,500 in 1981 to 1984, respectively. Complete figures are not available for 1980.

Mr. Haynes: Is the hon. Gentleman aware that that is a terrible record and that the Government and particularly the Secretary of State ought to be ashamed of themselves? The Government regularly trip out the claim that they look after the elderly, yet in my constituency and, no doubt, throughout the country, elderly people are living in two-bedroomed houses or three-bedroomed houses which could be allocated to young married couples. Because the Government have cut back on finance, properties for the elderly are not being built. What does the Minister intend to do about that?

Sir George Young: I hope that the hon. Gentleman will recognise that local authority renovations in 1984


added 5,200 to the figures which I have just given and that the number of housing association schemes has risen from 1,800 to 2,500. The figures indicate a rising trend, which I hope he welcomes.

Mr. Dickens: Do not the figures announced by the Minister this afternoon represent a good record for pensioners? Do not the figures illustrate vividly that pensioners, in terms of pensions and living accommodation, are far better off under the Conservatives?

Sir George Young: I am grateful to my hon. Friend for his robust defence of Government policy. It is worth remembering that a growing number of pensioners are owner-occupiers and have a substantial equity in their own homes. They do not look to the local authority for accommodation in their retirement, but are happy to buy leaseholds on suitable accommodation provided by the private sector — a fact overlooked by the hon. Member for Ashfield (Mr. Haynes).

Housing Investment

Mr. Hardy: asked the Secretary of State for the Environment if he will list those local housing authorities which have expressed approval of current Government policy in respect of housing investment.

Mr. Gow: No such list is maintained.

Mr. Hardy: Does the Minister accept that if there were a list it would be incredibly short? Is he aware that the majority of housing authorities which have to face staff decay and the reality of need, even if Conservative, would be exceedingly critical of present policy? Has the Minister seen the pertinent comments by the retiring ombudsman about improvements, or does he think that everyone other than Ministers is out of step?

Mr. Gow: The common experience of mankind is that all those who receive allocations would like more. The House should understand that.

Mr. Marlow: Given the appalling record of mismanagement by many Labour-controlled local authorities, instead of listening to their whingeing about not having the funds and not being able to cope, why does my hon. Friend not require them to hand over much of their housing to skilfully managed private sector companies, which would have three advantages: first, they would not be politically motivated, secondly, they would be using private not public funds, and, thirdly they might actually know what they were doing?

Mr. Gow: My hon. Friend rightly draws attention to the importance of improving the management of our public sector housing stock. My hon. Friend the Under-Secretary of State last month launched the urban housing renewal unit, which is devoted to a much closer partnership between the public and private sectors in trying to find solutions to our housing problems.

Mr. Chris Smith: Since 100,000 homeless families report to local authorities every year, since millions of families are badly housed and in need of council accommodation and since 400,000 construction workers are on the dole, costing the British Exchequer £2,400 million a year, would it not make social, compassionate and economic sense to put those people to work building more houses?

Mr. Gow: The whole House is concerned about the problem of homelessness.

Mr. Dobson: Humbug.

Mr. Gow: It is unworthy of Opposition Members to claim a monopoly of compassion. I am looking forward to visiting the Brent, East and Brent, South constituencies on Monday week, when, in the company of the right hon. and hon. Members who represent those constituencies, I shall examine the severe problems of homelessness in that area. A real contribution to solving the problem of homelessness could be made if some of the 25,300 local authority-owned dwellings which have been empty for more than a year were brought back into use.

Mr. Fairbairn: If my hon. Friend wants a cheap way of improving housing imvestment, will he immediately sell off the historic buildings in which his Department keeps sculptures, which are surrounded by neat little lawns with expensive little notices telling us that we are not allowed to walk on them, so that the buildings can be restored as homes for people by people who care about old buildings?

Mr. Gow: I am not sure that I entirely understand my hon. and learned Friend's suggestion but as it comes from him I shall examine it most carefully.

Mr. Rooker: If the Minister and, indeed, the Secretary of State are so concerned about the homeless, why is the Department refusing to have a British element in the 1987 International Year for the Homeless? Secondly, does the hon. Gentleman agree that an element of Government policy should be investment in housing, including repairs, new build and renewal, at a rate that is at least equal to that of deterioration?

Mr. Gow: I shall discuss with my right hon. Friend the Minister for Overseas Development, who represents the sponsoring Department, the first issue raised in the hon. Gentleman's supplementary question. Secondly, my hon. Friend the Under-Secretary of State told the House earlier this afternoon that £1 billion a year from housing investment programme allocations is being spent on the repair of our local authority housing stock. In addition, another £1 billion a year is being spent from the housing revenue account.

Southwark Borough Council

Mr. Gerald Bowden: asked the Secretary of State for the Environment how many meetings there have been between officials of his Department and senior officers of Southwark borough council since the beginning of 1985; and what were the reasons for such meetings.

Sir George Young: There have been two such meetings this year: a discussion about the redevelopment of the Bonamy estate and one about the disposal of land on the borough's land register. However, my hon. Friend the Minister for Housing and Construction is arranging to meet the elected representatives of Southwark, together with their officials, in the near future to discuss the unwarranted delays being experienced by tenants seeking to exercise their right to buy from the council.

Mr. Bowden: I thank my hon. Friend for his answer. I hope that when the meeting takes place my hon. Friend the Minister for Housing and Construction will tell the


officials of Southwark borough council of the frustration, anger and disappointment that so many of my constituents feel because of the lack of progress with their right-to-buy applications? Will he say what he intends to do about the incompetence and intransigence of Southwark borough council in dealing with the applications?

Sir George Young: I understand my hon. Friend's indignation. He has been in regular contact with my Department about the frustrations of the tenants in his constituency. My Department has formally warned the council under section 23 of the Housing Act 1980 that we are contemplating intervention. Before we take that step we wish to discuss the issue with councillors and officials in the near future. Southwark borough council indulges in meaningless procedural requirements, which delays the opportunity for tenants to buy their homes.

Mr. Simon Hughes: Will the Minister think again about the powers of the ombudsman? It appears that Southwark and many other authorities are guilty regularly of what is found to be maladministration. There will be no effective remedy until the ombudsman is given power to impose a solution when a local authority is not going about its affairs properly.

Sir George Young: I have noted what the hon. Gentleman has said. I have no doubt that the Government Departments that are responsible for these matters will take account of what he has said and consider whether there is any remedy for the injustice that he has described.

Business Rates

Mr. O'Brien: asked the Secretary of State for the Environment what responses he has received to his letter of 8 March asking for details of the effects of business rates on the location of employment.

Mr. Kenneth Baker: I have received six replies from organisations I consulted. A number of other bodies have also volunteered their interest.

Mr. O'Brien: Will the Minister accept the conclusions of the Cambridge report entitled "The Effects of Rates on the Location of Employment"? The report was commissioned by the Government at a cost of £50,000. It concludes that there is no evidence that rates or rate increases have an effect on employment. It states also that

rating does not have an effect on the location of employment in local authority areas. Will the Minister accept the report in full?

Mr. Baker: The dossier which the CBI sent to me does not support what the hon. Gentleman says. If he believes what he says, let him make a speech in Birmingham, where the rates have gone up by 42p this year, or in Newcastle, where they have gone up by 54p. Let him try to persuade the business men in those two great industrial cities that rates are not important.

Mr. Fallon: Is my right hon. Friend aware that a department store in Darlington has a rates bill this year of over £250,000, that many smaller businesses have to pay rates of over £100 a week and that high rates in the north are not only driving businesses away from the region but are dissuading them from coming to the north?

Mr. Baker: My hon. Friend is right — and hon. Members on both sides of the House know from experience that he is right—in saying that high rates by high-spending authorities affect areas adversely. That is true both in jobs and in the domestic area.

Mr. Straw: Why is the Minister refusing to accept the conclusions of the independent study which his Department established? Does he appreciate, since he referred to Birmingham, that that city had the fastest rate of job loss when the Conservatives were in control there and that the rates fell? Is he aware that the report not only said that there was no relationship between rates and unemployment but that it went on to say that higher levels of spending in Labour areas led to higher levels of employment? As there is now clear evidence that Labour policies by Labour-controlled authorities are working to bring down unemployment, when will the Minister change his policies, which have led to massive cuts in services and jobs and have in no way helped the businesses which he claims to represent?

Mr. Baker: The hon. Gentleman lives in an unreal world. After the big increase in Birmingham, Ericsons told the leader of Birmingham city council:
Your decision to increase your prices, the rates, by 43 per cent. has, at a stroke, reversed our attitude towards our planned further expansion in Birmingham.
That is the real world. High rates affect business decisions and employment.

Written Questions

Mr. Gerald Kaufman: On a point of order, Mr. Speaker. I wish to draw your attention to, and ask your advice about, written question No. 104, which stands in the name of the hon. Member for Westminster, North (Mr. Wheeler), which appears at page 4454 of the Order Paper and which, according to the note on the Order Paper, was tabled only yesterday, but nevertheless will be answered immediately today. That question, clearly put down at the instance of the Home Secretary, asks
the Secretary of State for the Home Department, whether he has decided on changes to the immigration rules to comply with the recent judgment of the European Court of Human Rights.
It is clear that the Home Secretary is using this planted question as the occasion to make an announcement about his decision on the matter.
On 3 June I moved a Standing Order No. 10 motion that we should debate this subject, but you, within your discretion, decided that that was not the occasion for such a debate. A month later, the Home Secretary, speaking about the matter, said:
I made it clear at the time of the decision that we would take whatever steps were necessary to ensure that we were complying with the convention as interpreted by the Court. I hope to announce our plans for doing so shortly."—[Official Report, 4 July 1985; Vol. 82, c. 508.]
The implication to a large number of people of a statement such as that by the Home Secretary must have been that he would make an announcement to the House about the Government's decision on a matter of enormous constitutional and human importance to many thousands of women in Britain.
What will now happen is that a written answer will be made available to the hon. Member for Westminster, North and to the press. It will be available to the news media for the rest of the day and be subject to the news management of the Home Office during that period. However, the House will not have an opportunity to question the Home Secretary about his decision.
I am therefore asking you, Mr. Speaker, in your role as guardian of the rights of hon. Members to explain how we can secure a statement to the House by the Home Secretary in oral form so that we may question him on a decision of very great importance indeed.

Mr. Speaker: The right hon. Gentleman well knows that it is not for me to summon Ministers to make statements. I have no authority over that. It is some three or four years since I heard the phrase "planted question", so I do not know what the right hon. Gentleman means by that, either. Copies of written answers are always available in the Library, so the right hon. Gentleman and other hon. Members who are interested in the subject—I know that many are — will have an opportunity of seeing the answer to this question.

Mr. Andrew Faulds: Further to that point of order, Mr. Speaker. Planted questions answered by putting the replies in the Library does not give Members of the House of Commons an opportunity to pursue this highly important—

Mr. Speaker: Order.

Mr. Faulds: It is totally unacceptable.

Mr. Speaker: Order. I said that I had no knowledge of this planted question theory.

Mr. Jeremy Corbyn: Further to that point of order, Mr. Speaker. As the answer that the Minister will give is a matter of law and might require a change in the immigration rules, would it be in order for him to make a statement, as he must before such changes can be put into operation, so that he can be questioned and these matters can be debated on the Floor of the House?

Mr. Geoffrey Dickens: Further to that point of order, Mr. Speaker. The shadow Home Secretary raised a point of order, but are we not just being presumptuous, because many times when we table questions we get a holding answer saying that the Minister will make a statement shortly? How on earth can we now discuss what might be in an answer when we have not yet seen it?

Mr. Laurie Pavitt: Further to that point of order, Mr. Speaker. This procedure is within the rules of the House, but Ministers are aware of special interest. I received letters this morning from two Mr. Patels, which are fairly typical of my mail. They have fiancée problems. The Home Secretary is aware that certain areas and certain hon. Members have a specific interest. Is it not your experience, Mr. Speaker, that when this kind of thing has occurred the Minister concerned has informed individual Members and given them the opportunity of contacting the Minister's private office on the matter?

Mr. Merlyn Rees: Further to that point of order, Mr. Speaker. I acccept what you said, that this is not a point of order, but may we have your advice on the matter? Giving a written answer to a question, whether planted or not, is giving information to Parliament, and is within the rules. However, this is a most important matter, and for the Government to proceed in this way is wrong. We need to discuss it.

Several hon. Members: rose—

Mr. Speaker: Order. None of this is a matter for me. I also am a constituency Member of Parliament, and I have an interest in the matter, too. I have not seen the answer to the question. I shall be sending to the Library also. It is not a point of order for me.

Mr. David Winnick: Further to that point of order, Mr. Speaker. You have stated that it is not a matter for you, and we understand that. No doubt Ministers will argue that the procedure is in order. However, would I not be right in saying that when a matter is controversial, hon. Members should be able to question Ministers? Does not the procedure that has been adopted illustrate the contempt that Ministers have for the House of Commons?

Mr. Speaker: Order. We do not know whether the matter is controversial. I have not seen the answer.

Mr. Peter Pike: Further to that point of order, Mr. Speaker. You will appreciate that I have asked several questions on the issue recently. I was contacted by the press this morning and virtually told the answer. Many newspapers are running this as an important issue in their evening editions. I recognise that a planted question is not an issue for you, Mr. Speaker, but if the answer is known, and has been given to the press, is that not a matter for you?

Mr. Speaker: The House well knows my oft-repeated comments on this matter. If the press has information that is embargoed, it should never make use of it before hon. Members have had an opportunity to see the answer.

Several hon. Members: rose—

Mr. Speaker: Order. I cannot take any further points of order on this matter. The House well knows that it is not a matter for me. It will have to be pursued in other ways.

Mr. Kaufman: rose—

Mr. Speaker: I shall hear the right hon. Member.

Mr. Kaufman: Thank you, Sir. May I put this to you, in the presence of the Government Chief Whip? Since I raised my point of order, evidence of concern in the House has manifested itself—[HON. MEMBERS: "No."]—and it is clear that if you had not decided to curtail any further points of order it would have manifested itself further. That being so, may I say, in the presence of the Government Chief Whip, that I hope that the Government will take account of what has been said this afternoon, that they will consider the comments carefully and that they will come back to the House with a response.

Mr. Dennis Skinner: Further to the point of order, Mr. Speaker.

Mr. Speaker: Is this a different point of order?

Mr. Skinner: It is adjacent to the matter that is being discussed.
On Monday there was a fairly considerable change in the Government's policy — for which they are, of course, not responsible. The Government decided to relax trade with Argentina. The information came in the form of a written question and answer. Some would say that it was a planted question and a planted answer. However, we are not into that, because we have heard enough about it.
I should have thought, Mr. Speaker, that you, as the custodian of our affairs, would want the House of Commons, at all times when this is possible, to be able to debate the issues of the day. On Monday, I and others said, "Is it not a scandal that we have a written question and answer on trade with Argentina being relaxed?" At one time, that was a big affair. Today, my right hon. Friend

the Member for Manchester, Gorton (Mr. Kaufman) has raised another issue. I took only a passing interest in chat matter. The Home Secretary made a promise to the House—not just to my right hon. Friend, but to Mr. Speaker—that this matter would be dealt with in the House. He was saying that you, Mr. Speaker, would be in charge of the proceedings when the matter was raised.
The last thing that we want is for the Front Bench continually to be heaping insults upon the Chair. I make a suggestion along the lines of your statement last week, after you were faced with a problem. You gave an off-the-cuff response, but came back a few days later—I do not want to have to repeat this story, because it is difficult to remember and difficult to digest—and said, "In future, I shall look at matters in a more studied fashion."
You have heard the complaints about the Government's growing practice of abusing the form of written questions and answers. I suggest that you examine this matter and return with a statement on a future occasion.

Several Hon. Members: rose—

Mr. Speaker: Order. It is plainly not a question on which I can make a statement. It is nothing at all to do with me. The House well knows that this is a matter for the Government. Whether statements are made, whether answers are given and whether written or oral questions are asked has nothing to do with me.

Mr. Michael Meadowcroft: On a separate point on the same issue, Mr. Speaker. May I put it to you that you are the guardian of Back Benchers' rights in the Chamber? We respect your task. Some of us have many cases relating to the particular problem of the immigration of fiancées. The problem is that, once the issue is raised in the press as a result of a reply to a written question, a number of our constituents will come to us with different parts of the reply. If we have no opportunity in the Chamber to ask the Minister questions on the different aspects, we have no way of answering our constituents' questions. Is it not part of your duties, Mr. Speaker, in protecting the rights of individual Members who are faced with these problems, to ensure that the information comes to the House in the proper way?

Mr. Speaker: Order. The House has never given the Chair that responsibility. It is not a matter for me.

South Africa (Sanctions)

Mr. Richard Caborn: I beg to move,
That leave be given to bring in a Bill to establish machinery to impose economic sanctions on trade with South Africa subject to conditions relating to the system of apartheid operated in South Africa.
It is extremely unfortunate that the subject of sanctions against South Africa has to come before the House of Commons in the form of a ten-minute Bill. The people of this country would have expected the Government to have given time for a full debate on what is an extremely important issue.
The Bill has five main elements. The first is to give the Secretary of State, by order, the power to control the import and export of goods to and from South Africa. That is a general provision. Secondly, there is a power to stop the import or export to or from South Africa of oil or products derived from it, coal or products derived from it, uranium and all militarily strategic goods of a description included in groups 1 –4 of part II of schedule 1 to the Export of Goods (Control) Order 1985. Thirdly, there is the element that gives the Chancellor of the Exchequer power to prohibit and regulate transactions between the United Kingdom and South Africa relating to individual residents in or bodies corporate registered in South Africa, directly or indirectly, of gold, currency payments, securities, debts and the import-export transfer and settlement of property. Fourthly, the Chancellor of the Exchequer shall prohibit the import of Krugerrands, dealing in gold and currency, the payment of any capital moneys, directly or indirectly, to any person resident in South Africa or body corporate in South Africa. Fifthly, there is the power to request Her Majesty, by Order in Council, to effect the United Nations Council on Namibia decree No. 1.
The position in South Africa is deteriorating daily. I have heard and seen that on the radio and television today. Over the past nine months there have been over 500 deaths in that country, the vast majority of which have been at the hands of the security forces or the police.
In the past week the South African Government's think-tank report proclaimed that apartheid has failed to solve South Africa's racial problems, and warned that attempts to enforce it would only exacerbate racial tension. That long-awaited report from the Government-funded Human Science Research Council recommended talks with the leaders of all races and the establishment of a democratic system open to all South Africans. The report also noted that nearly 66 per cent. of the black population favoured the use of violence to bring about change. I and many people believe that that shows that the level of repression in South Africa is such that the majority of blacks are prepared to resort to violence to secure basic freedoms.
One of the report's most striking points is the acknowledgement that the security legislation, whilst theoretically designed to ensure the security of the state, has, in practice:
been largely employed to deal with persons and organisations engaged in extra-Parliamentary opposition to Government racial policies.
The report concludes that the security legislation is
a threat to the security of the state … the mistrust of a legal system is one of the strongest incentives for revolution.
That comment is made in a report on the internal problems of the country funded by the South African

Government. The South African authorities clearly break and disregard international law with their illegal occupation of Namibia and by acts of international terrorism — we have heard some prominent people talking about international terrorism — such as their bloody incursions last month into Botswana, when a number of innocent men, women and children were killed, and the attempted sabotage of an American oil installation in Angola.
When South African subjects carry out illegal acts in the United Kingdom—as the Coventry four trials have shown; the results are in this morning's newspapers — the South African Government openly defy the British Government's request for the return of South Africans who were involved in that illegal act, although the bail conditions were underwritten by the South African embassy in London. The bail amounted to some £400,000. The decision not to return those people to stand trial in the United Kingdom was a political decision by the South African Government.
The British Government's response to acts of international terrorism, which resulted in bloody slaughter within a Commonwealth country, is to call in the South African ambassador and to slap his wrists. I asked a question about the number of visits the South African ambassador has had to the Foreign Office and the reply states that there have been seven since August 1984. There is a path between Trafalgar Square and the Foreign Office where from time to time one might bump into the ambassador for South Africa. The Government did not even recall their ambassador from South Africa for consultation, which would at least have shown some visible signs of disapproval. Even the Americans recalled their ambassador. Against this background of growing tension and conflict the international community are taking steps in one form or another to bring pressure to bear on the South African authorities to introduce fundamental reforms to give the majority of people in South Africa their basic democratic rights and freedom.
In the United States over 20 Bills have been submitted through Congress with Republican and Democratic support and in the next few weeks the President of the United States of America will have to make a decision either to continue with his policy of constructive engagement or to support the majority decisions of the Congress. In Canada, only this past weekend, a package of economic sanctions against South Africa has been announced as part of the international action aimed at getting Pretoria to abandon apartheid.
The Nordic states have acted jointly to halt flights to South Africa. The Swedish Government, in June, recommended severely curtailing contacts with South Africa. A seven-page Foreign Ministry report urged that cultural, scientific and sports contact with Pretoria be avoided so as to express Sweden's disapproval of apartheid. France has announced measures against South Africa. The European Parliament in April, agreed a resoulution which outlined actions that should be taken against South Africa and called on the Council of Ministers to act forthwith.
Only yesterday in London the Commonwealth Committee on South Africa fully supported the Security Council resolution No. 566. These are only an illustration of what is happening on the international front. All these countries and organisations are rejecting the theory of constructive engagement. The only country that is openly


advocating the status quo is our own, leaving us in total isolation and apart from the rest of the international community, which can be clearly seen as siding with the apartheid regime. The United Kingdom has a very important role to play in bringing about change in South Africa. Since 1979, when the Labour Government left office, we have invested something over £300 million each year. That is an increase since 1979 of 600 per cent.
On the question of trade, the Government have openly encouraged trade with South Africa, spending over £600,000 of taxpayers' money in promoting 85 trade missions since 1979. We are the biggest international prop to the system of apartheid. The arguments we have heard from the Foreign Office against the limited boycott of South Africa are twofold. First, it is said the blacks in South Africa are divided about sanctions. It is a bit difficult to take a Mori or NOP poll in South Africa on this question, particularly when the answers one may give could land one in jail and up until recently carried a minimum sentence of five years' imprisonment. The South African Council of Churches stated in a six-point recommendation that disinvestment was, and I quote
one of the few remaining methods to achieve justice without violence".
The second argument put forward by the Government is that sanctions do not work, but when pressed to apply limited sanctions, such as no new investment, they argue, because one has conceded the principle of sanctions, further actions and measures would be required if the limited sanctions do not work.
We have the sports boycott through the Gleneagles agreement. We have the arms embargo through the United Nations. I challenge the Government, in the face of mounting international pressure to say that this will not work. I repeat the words of Bishop Tutu when he appealed to the people of the United Kingdom at St. Pauls' last November to
ensure that your country exerts political, diplomatic, but above all economic pressure on the South African Government to persuade it to go to the Conference Table of a National Convention with the authentic leaders of all sections of our community, and for us blacks it would mean our real leaders, now in jail or in exile.
I ask the House to reject the argument from the hard line Members on the Conservative Benches. We want to rid South Africa of 20th century slavery, which is what segregation and apartheid means, and to stop the United Kingdom from becoming isolated in the international community. I ask the leave of the House to bring in this Bill.

Mr. John Carlisle: Mr. Speaker—

Hon. Members: Shame.

Mr. Speaker: Order. The hon. Gentleman has a right to be heard.

Mr. Carlisle: My right hon. and hon. Friends and I sat and listened to the epistle read out by the hon. Member for Sheffield, Central (Mr. Caborn) with a certain amount of interest, but a certain amount of sadness.

Mr. Roland Boyes: On a point of order, Mr. Speaker.

Mr. Speaker: Does it relate to this matter?

Mr. Boyes: Yes it does. Will the hon. Member for Luton, North (Mr. Carlisle) tell the House whether he has any interest in South Africa?

Mr. Speaker: Order. If the hon. Gentleman has a financial interest, no doubt it will be in the Register of Member's Interests. [Interruption.] Order. The hon. Gentleman has hardly begun.

Mr. Carlisle: The predictability of the Opposition in their usual question to me is answered in the Register of Members' Interests, as you say, Mr. Speaker. I have nothing further to add. I was tempted to ignore the squalid introduction given to the Bill by the hon. Member for Sheffield, Central. Perhaps if it had not been for his emotive language, the ignorance that he displayed and—

Mr. David Winnick: On a point of order, Mr. Speaker. You said that no doubt the hon. Member would declare his financial interest. The hon. Gentleman has referred to the Register of Members' Interests, but how can we know what is in that register at this stage, and how can the public know? As I understand it, the hon. Gentleman has conceded the fact that he has had a number of free trips to South Africa. He has a duty and an obligation to make it clear that he has been to South Africa at the expense of the South African authorities.

Mr. Speaker: Order. It is a matter of honour for hon. Members to declare any interest in the Register of Members' Interests. If the hon. Member for Luton, North (Mr. Carlisle) has any other interests, I am sure that he will declare them.

Mr. Carlisle: The hon. Member for Walsall. North (Mr. Winnick) has put that point many times and obviously does not remember much of what he says in the House, which is of benefit to us. He should know, as I have declared to the House, that I have no financial interest in South Africa.
The House has been asked to hear the usual parade of conscience by a member of the anti-apartheid movement, supported by Labour Members. It is a conscience that they see fit not to parade when they talk about human rights in other countries.

Mr. Andrew Faulds: That is not true.

Mr. Carlisle: I will concede, as I have always done, that I find apartheid a violation of human rights, and I abhor the system. I have always said so publicly and I repeat that assertion today. However, the House has to ask itself whether the introduction of the Bill will be of any benefit to those whom it is intended to benefit—that is, blacks in South Africa—and what effect those sanctions would have upon the blacks in South Africa and the many other people in South Africa who should also be remembered.
What the Opposition and those who advocate sanctions do not understand is that they will create an enormous loss of jobs in South Africa. A 20 per cent. disinvestment by the west would see a loss of 90,000 jobs for the whites within the South African economy and the loss of 350,000 jobs for the blacks. I should not wish to advocate that for a policy.
The second effect of sanctions on South Africa is the fact that many foreign workers, of whom there are about 1 million in South Africa, would have to leave the country and that is understandable, given the unemployment


position. The third effect is perhaps one of the most telling and sad facts about this Bill. It would halt those reforms that have recently taken place in South Africa.
As usual, Labour Members have jeered ironically, and I would admit that those reforms are inadequate in terms of western ideals. We must recognise that reform there has been, and the advancement of the black in South Africa has been considerable in South African terms over the past five to 10 years. This measure would halt those reforms in their tracks, and I remind hon. Members that the changes that took place in the United States and advanced the blacks in America occurred in conditions of economic prosperity and not in the conditions that Labour Members want to see, of economic depression.
The last effect that this Bill and disinvestment would have upon South Africa is that they would undoubtedly increase violence in that society. I suspect, and I say no more, that there are many Opposition Members who would wish to see that violence increase against the elected South African Government, whether that Government be elected by the whites alone or by the whites, and the coloured and Indian populations. The case is severely undermined by the violence in that country perpetrated by the ANC and others who would, of course, welcome disinvestment.
If we are to have some sort of influence—and here I have a genuine sympathy and understanding with the Opposition — upon the South African Government, surely we would be better able to exercise it on the basis of some form of involvement with British companies investing in that country, rather than trying to disinvest and cutting ourselves off from them. The record of British companies in South Africa is extremely good and the wages of 98 per cent. of the black workers is above the

EEC code laid down in Europe. We must ask ourselves whether this measure and the measures proposed by the United States Congress will benefit the blacks. I suggest they will have the opposite effect.
Evidence put forward by various commentators against disinvestment is very considerable. The opinions of the hon. Member and his hon. Friends are in a minority, certainly in South Africa as well as in the rest of the world. Prominent people like Alan Paton, who is no supporter of the South African Government, has said there should never be disinvestment. Even Bishop Tutu, who was mentioned by the hon. Member, caused some consternation when he questioned whether disinvestment would have any effect. I leave the house with the words of Chief Buthelezi who leads some one million blacks of the Inkatha tribe in South Africa, whose word I would trust rather more than the ignorant words of the hon. Member for Sheffield, Central. Chief Buthelezi says:
If the West wants to increase black bargaining power it must double up on its investments, not disinvest.
For that reason and certainly for the good of the black people in South Africa, I ask the House to reject the Bill.

Question put and agreed to.

Bill ordered to be brought in by Mr. Richard Caborn, Mrs. Ann Clwyd, Mr. Derek Fatchett, Mr. Andrew Faulds, Mr. Robert Hughes, Mr. Peter Pike, Mr. Allan Rogers, Mr. Ernie Ross, and Mr. David Winnick.

SOUTH AFRICA (SANCTIONS)

Mr. Richard Caborn accordingly presented a Bill to establish machinery to improve economic sanctions on trade with South Africa subject to conditions relating to the system of apartheid operated in South Africa: And the same was read the First time: and ordered to be read a Second time upon Friday 25 October 1985 and to be printed. [Bill 190.]

Orders of the Day — Finance Bill

Not amended (in the Committee) and as amended (in the Standing Committee), considered.

New clause 9

MITIGATION OF CORPORATION TAX LIABILITY OF INDUSTRIAL AND PROVIDENT SOCIETIES AND HOUSING ASSOCIATIONS

'(1) Where in any accounting period of a body to which this section applies the rate of corporation tax exceeds such special rate as Parliament may fix for the purposes of this section the body may claim that the corporation tax charged on the income of that body for that period shall be calculated as if the rate of corporation tax were equal to that special rate.

(2) The bodies to which this section applies are:

(a) any registered industrial and provident society as defined in section 340 of the Taxes Act and any such co-operative association as is mentioned in subsection(8) of that section;
(b) any housing association for the time being approved for the purposes of section 341 of that Act;

not being a society, association or company under the control (within the meaning of section 302 of that Act) of one or more companies which are not themselves bodies to which this section applies.

(3) For the purposes of this section the income of a company for an accounting period is its income charged to corporation tax for that period as defined in section 85(6) of the Finance Act 1972.

(4) The special rate for the purposes of this section shall have effect for the financial year 1985 and subsequent years and be 30 per cent.'.—[Mr. Hattersley.]

Brought up, and read the First time.

Mr. Roy Hattersley: I beg to move, That the clause be read a Second time.
The purpose of the new clause is to provide what is wrongly, though properly, called a special rate of corporation tax, a rate of 30 per cent. which this new clause would apply to registered industrial and provident societies and to housing associations. The incidence of this tax would be importantly felt and is desperately needed by housing associations and co-operative societies.
I said that I regarded the term "special rate" as something of a misnomer, because the idea of a special rate implies, and certainly in uninformed circles is taken to mean, that something to the advantage of the group in question is being proposed. This clause deals with the rate of corporation tax paid by industrial and provident societies and housing associations. It is not demanding, and I am not asking for them to be specially advantaged. I am asking that that group of institutions should be removed from their present situation, in which they are disadvantaged compared with their commercial competitors.
Some of my hon. and right hon. Friends may argue — I would argue on another occasion — that the advantages of these non-profit making institutions are such that they should be given a positive advantage from corporation tax. But that is not what we are arguing for today. We are asking for their treatment to be comparable with and no worse than that which is given to commercial companies. The new clause merely seeks to relieve the

societies and the associations of the discriminatory tax penalties which they presently suffer as a result of last year's Finance Bill.
When we sought to amend last year's Finance Bill to avoid these unfair penalties, I assumed that the Government in reforming corporation tax — as they chose to describe their proposals—had simply forgotten the effect which their proposals would have on friendly societies, provident and industrial societies, co-operatives and housing associations. I assumed that they had not realised the necessity of making special arrangements for these institutions to ensure that they would not be disadvantaged. It is impossible for me to be so charitable this year. The Government must know of the damage that their tax policy is now doing to these institutions, yet they have chosen to do nothing to rectify the injustice of last year's Bill.
Last year, when I moved the amendment which would have avoided the injustice coming about, the Financial Secretary sought to rebut the Opposition's arguments simply by saying that all tax innovations ought to be welcomed and that only fiscal conservatives would oppose a change of this kind. I understand why anyone who is responsible in any degree for Government economic policy welcomes changes of any description, but I cannot support a change—I did not support it, and I now want to remedy that change — that puts an important section of the economy at a disadvantage.
Now that Treasury Ministers have had a year to ponder the injustice, I look forward to hearing whether it will be argued that no such injustice exists or whether it will be said that the injustice exists but that it is just the bad luck of the institutions involved. My suspicion is that the failure to remove it is at least in part the result of the Government's prejudice against some of these institutions, co-operative societies especially.
The problem faced by the co-operative societies is easy to describe. When, in 1965, corporation tax was introduced, the rate of 40 per cent. was applicable to all companies — large and small companies and industrial and provident societies. In the early 1970s, the assessment of corporation tax was changed to what is called the imputation system. That system gave relief to businesses in respect of advance corporation tax on distributions. But since industrial and provident societies by their nature could not make such distributions, they were not originally required to pay the tax at the full rate. So when the imputation system was first introduced there were two special categories of enterprises which faced special problems for which the Government made special and necessary allowances. They were co-operatives and the like and companies or institutions which could not, sometimes by rule and often by practice, make the normal level of dividend distribution. Special arrangements were also made for small concerns which distributed a smaller proportion of their profits than the new rate of corporation tax hypothesised — 52 per cent. based on average distribution, which was anticipated to give a 40 per cent. yield.
At that time, the Government accepted that in smaller firms and institutions where the proportion of profit distributed was smaller than in normal commercial undertakings, a special accommodation had to be made. To accommodate the small companies, the small company


rate was introduced. Initially, it was 42 per cent. Then it was 40 per cent. Then it was 30 per cent. That was designed as a special encouragement to small firms.
The Government of the day acknowledged that a parallel position existed in and for the institutions listed in the new clause. They acknowledged that co-operative societies by their nature distributed a smaller and a fixed percentage of their profits. Therefore, a special rate was fixed for them.
The differential between normal commercial companies and friendly, industrial, provident and co-operative societies was not meant to favour the latter group. It was not meant to ensure that those institutions paid less than others in tax. It was meant to give them equality of treatment.
The point was described exactly by the hon. Member for Croydon, South (Sir W. Clark) in Committee on last year's Finance Bill. I did not warn the hon. Gentleman of my intention to quote his words because I felt certain that he would be here to take part in the debate. I am gratified to see that my judgment on that issue about him is correct, and I repeat that I cannot imagine a better way of describing the position than that which he used a year ago. He said:
if one accepts the principle of the differential between imputation where one can and cannot distribute, there should be a lower rate for building societies, and presumably co-operative societies, so that we still maintain the justice effected in 1972."—[Official Report, 1 May 1984; Vol. 59, c. 286.]
4.15 pm
The new clause seeks to restore the justice that the Government in 1972 believed to be proper. Yet last year the justice effected in 1972, in the hon. Gentleman's terms, was removed. Co-operatives are now taxed at full corporation rate, whilst private and commerical companies are allowed to deduct their shareholders' liabilities on the distributions which are made.
When the special rate for co-operatives was withdrawn last year, I am told that the Co-operative Union, speaking on behalf of co-operative societies in general, met the Inland Revenue. The Co-operative Union assures me that the Revenue itself, acting as the Revenue always does in a role almost independent of that of the Treasury and its Ministers, agreed that to introduce the scheme proposed in last year's Finance Bill and to abandon the special rate for co-operatives would be to militate against the interests of co-operatives in a way which placed them at a severe fiscal disadvantage to their commercial competitors.
The talk about fiscal neutrality does not appear to apply to co-operative societies, to industrial and provident societies, to friendly societies and to housing associations.

Mr. Alfred Morris: My right hon. Friend is on to a very important point in arguing for, in effect, simple equity. He is making a compelling case, and I welcome that as chairman of the Co-operative parliamentary group in the House. Will he emphasise that a fundamental difference is that a co-operative shareholding is quite distinct from that in a company and that co-operative members do not benefit from rights issues? Again I am extremely grateful to my right hon. Friend for the very strong and unanswerable case that he is advancing.

Mr. Hattersley: I am grateful to my right hon. Friend as well, because he is right when he says that, by their

constitutions, co-operative societies have members — in some cases they are nominally described as shareholders — who do not enjoy the normal privileges and advantages of shareholders. There are no rights issues and no scrip issues, and the proportions of the profits that they receive are always limited by convention, often limited by rule and sometimes limited by law. It is because of the limitation on distribution that, were there not to be a special rate for co-operatives, the co-operatives would be enormously disadvantaged.
By their nature, co-operative societies minimise profits to their shareholders because they exist to maximise benefits to the consumers. Very much the same rule applies with the co-operative wholesale societies in England and Scotland which, although having a new and different constitutional form, nevertheless do not distribute profits in the way which is common in commercial undertakings, and they could not be allowed to do so. It is for the reasons that my right hon. Friend explained that, were they to be treated as if they were normal commercial companies operating under normal commercial rules, they would continue to be disadvantaged in the way that I have described.
When the Financial Secretary wound up last year's debate, he made two points in rebuttal, having criticised the Opposition for not accepting any change, no matter how unjust. First, he said that the problem that we described did not arise, and he added that in any case it arose only in a very few cases. He said that fewer than 30 industrial and provident societies and what he described as rather more than 50 building societies would be adversely affected.
At the end of the debate, I was glad that the hon. Gentleman at least conceded that some of these societies, worthy in themselves and an important part of the economy — the co-operative movement represents 6 per cent. of the total retail trade — were adversely affected by the new rule. But I made it clear on behalf of the Opposition that we regarded this as a gross injustice which ought to be removed if only one society was affected.
However, more and more co-operative societies seem certain to be affected because of the reorganisation now going on within the co-operative societies. They are amalgamating. They are becoming larger. As they become larger, they become more profitable. As they have become simultaneously larger and more profitable, an increasing number are being required to pay a rate of tax which is unjust compared with that of commercial competitors.
I shall conclude—no doubt the Chief Secretary will soon conclude the speech that he will give rather than the one that he is preparing — with three examples of the new iniquitous system, which the Finance Act 1984 brought about. They relate to successful co-operative societies.
The Sheffield society, which was called the Brightside and Carbrook when I was a subscriber, would have paid £510,000 under the scheme that existed before the Finance Act 1984. Under the new scheme it pays £675,000 on exactly the same turnover, and if the new clause is accepted, the tax liability at 30 per cent. will produce a yield to the Treasury of £306,000, which will more or less return it to its position before the discriminatory clause was introduced.
Under the old scheme the Plymouth co-operative society would have paid £20,000. Under the new scheme it pays £708,000, and if my 30 per cent. proposal is


accepted the society will be required to pay £531,000, which is little more than was levied from it under the old scheme, but much more in line with what was regarded as just before the Finance Act 1984.
Under the old scheme the Peterborough society would have paid £705,000, under the new scheme it pays £800,000, and under my scheme it would receive a benefit which would return it more or less to its position before the Finance Act 1984.
We are asking for a return to the position that existed before the Finance Act 1984, which acknowledged that because of the co-operative societies' patterns of profit and dividend distribution, to levy corporation tax on them in the same way as on commercial undertakings would put them at a fiscal disadvantage. Surely that is wrong. I hope that the Financial Secretary will agree to change it.

Mr. Ian Wrigglesworth: I support the new clause because I welcome the opportunity to support mutual organisations. Yesterday we discussed an amendment which sought to help friendly societies. We all know, especially those of us who come from and represent northern constituencies, of the important social and economic role that mutual organisations, such as friendly societies and co-operative ownership enterprises, have played in the north and, indeed, throughout the country. We should support those organisations because their owners and participants, whether consumers or producers, workers or customers, are motivated by a prime interest in the organisation. They participate in and organise the societies not for private gain, but for the benefit of the co-operative and the community that it serves.
The new clause would help co-operative societies, especially co-operative ownership in housing, which is a relatively recent development. It has become a significant part of the housing sector—some would say not nearly as significant as it should be—only during the past two decades as a result of the pioneering work of a small group of enthusiastic supporters including Mr. Harold Campbell, who played a major role both through the Co-operative Housing Agency and by promoting the idea of co-operative housing in Government circles and throughout the country.
As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said, the new clause seeks to extend the lower rate of corporation tax to a variety of institutions defined in the Taxes Act. As I understand it, that includes credit unions, industrial co-operatives, housing associations and self-build societies. In my constituency, self-build societies, co-operative housing bodies and housing associations are making a most worthwhile contribution to the community's housing needs, especially in the south Middlesbrough area.
One of the best features of that development, which my colleagues and I should like to see extended to other areas, is the mixture and proximity of different types of housing ownership. Rented accommodation, self-build accommodation, part-rent and part-owned accommodation, co-operative owned accommodation and privately owned accommodation are together in the same development. That provides both a good social mix and, more importantly, a chance for consumers to have a wide range of opportunities to buy or rent houses, and to participate in housing schemes, as their inclination and pockets will allow. That sort of development, which the new clause would encourage, should be supported by the House.
The trouble is that, even if the Government accept the new clause, it will do little to reverse the dreadful decline in support for this type of housing venture and institution that has occurred since they carne to office. There has been a 21 per cent. real fall in gross loans and grants to housing associations since 1982–83. That means that in the north-east the Housing Corporation cannot meet the bill for more than £4 million worth of major repairs to housing association properties, of which some £2·27 million relates to properties for which local authorities are prepared to provide funds, but to which the corporation cannot respond. For a Government who say that home ownership is one of their most important aims in housing policy—they said that in the housing expenditure White Paper—they have been especially tardy in helping the low-cost home ownership programmes, which have become a growing proportion of housing association activity.
4.30 pm
We all know from our experience in our constituency surgeries, possibly from our own personal experience, and from those with whom we have contact, that low-cost home ownership and the role that the housing associations can play in it is vital.
In the north-east, the housing associations were allocated only £16 million, compared to bids of up to £45 million. Therefore, there is a substantial gap between what the associations could do to help the housing needs of the north-east, where the gap is considerable, and what they are enabled to do. We have rehearsed, during general economic debates in this House, the arguments for investment of that sort. It is just the type of investment on which the Government should be embarking at present. There is a real need, in areas such as the north-east, for this type of housing accommodation. There is also a real need for the spin-off in jobs and growth which would arise if the Government were to respond to the bids of £45 million made in the north-east by the housing associations.
In view of the Labour party's new enthusiasm for home ownership, it is interesting to note that in the 1985–86 programme there are only 300 houses under this heading for the whole of Cleveland county, where the smallest number of bids in the north-east region were made. Those are in Middlesbrough, which I have already mentioned. Perhaps some of the local authorities and their representatives on the boards of housing associations should investigate that apparent lack of interest, because many of us believe that the developments in co-operative housing and housing associations in the past 20 to 30 years have led to a third force in housing that is of enormous benefit to the community.
We hear a great deal from the Conservative Benches about the shortage of rented accommodation, but the references are usually to private rented accommodation. In recent times, to the benefit of many communities, there has been an enormous growth in the number of rented units of accommodation available through housing associations as an alternative to council housing. That is a very desirable development. I hope that the Government will support it.
The Conservative Government's limitations on capital finance have already held back the development of housing co-operatives. While the right hon. Member for Sparkbrook and some of his hon. Friends may be enthusiastic about the development of housing co-operatives, which were supported in the past by the late


Tony Crosland and others who established the Co-operative Housing Agency, only 8,000 units of housing have been provided since the Government started to take action in that area many years ago. Those 8,000 units have been provided by about 200 registered co-operatives. One of the reasons for the small number of units is that Labour councils throughout the country have been adamantly opposed to the development of housing co-operatives and housing associations because of the blind ideological commitment of those Labour councils to council housing as the answer — and the only answer — to the housing problems in their areas.
There is no better example than Liverpool. Under the Liberal council, 2,000 homes were provided in over 30 registered co-operatives—a high proportion of the total in the country as a whole. Therefore, it is not surprising that the registered co-operatives in Liverpool have been given a tribute—

Mr. Speaker: Order. The hon. Gentleman is straying rather wide of the new clause.

Mr. Wrigglesworth: I am marshalling the case in support of the new clause, which seeks to aid mutual bodies, such as the housing co-operatives to which I am addressing my remarks. In demonstrating why the new clause should be supported, I think it is appropriate that I should point out the developments that have taken place in housing co-operatives in past years. I have also tried to show why such developments have not taken place more rapidly than some of us would have liked to see.
I was pointing out that one of the reasons for the slow rate of development is the antagonism towards those mutual bodies, which provide housing and other forms of enterprise, by councils such as Liverpool, because of their commitment only to local authority housing. It seems to me that that is a perfectly valid point to make, because the new clause is concerned with encouraging the development of mutual housing associations and mutual bodies which can provide facilities of that sort.
I hope that the House will support the new clause, because the distinctive type of housing that is involved could make a major contribution to the country's housing and social needs. One of the best ways to encourage that sort of development is through the taxation system, and it is wrong that the mutual bodies should not be on all fours with companies in that respect. They should be given the fairly modest encouragement that the new clause envisages. As I said earlier, the new clause would do very little to make up for the deficiences in respect of which the Government have been guilty since they came to office.
I am very pleased that the Government, after some dithering on coming to office, kept the Co-operative Development Agency in existence. The agency is doing a first-rate job but it could be doing a much bigger and better job if more resources were made available to it. In the 1960s and early 1970s, I was, together with other colleagues, responsible for putting together the proposals that led to the establishment of the agency. We also saw it not only as a promotional body but as a body that would provide substantial funding for co-operatives of all sorts. I appeal to the Minister, in considering the new clause, to have regard to the good work of the Co-operative Development Agency and to the extra work that it could do if given more resources.
The case made by the right hon. Member for Sparkbrook in favour of helping mutual bodies also applies to resources for the Co-operative Development Agency. That body, which at national level can do a certain amount, could do a great deal more if it had the co-operation, support and resources of the local co-operative development agencies that local authorities have established in some areas to promote mutual bodies and co-operatives of one sort and another. We want to see the co-operative sector and the mutually owned sector develop as a significant force in the British economy. We want to see bodies with a diverse ownership. That is why in consideration of the Bill last night we proposed amendments to seek to make share ownership in institutions established under the Companies Act much broader, to try to introduce incentives to spread ownership.
We should like to see the co-operative sector as a dynamic and much more substantial third sector of co-operative employee-owned enterprises than is currently the case. We believe that this requires a new framework, including the development of strong co-operative support organisations along the lines of the Spanish Laboral Popular, which has helped to foster the Mondragon group of co-operatives, with which I know many hon. Members on both sides of the House are familiar. That has been an enormous success. There are other reasons, in addition to the support which is being given by that body. The provision of up to 75 per cent. of the finance for new co-operatives is an enormous help to the establishment of such mutual organisations, and we have nothing comparable in this country.
In addition to the modest incentives provided in the new clause, we also want to see a new form of incorporation.

Mr. Hattersley: I would not interrupt the hon. Gentleman's exposition on co-operatives in general and on Social Democratic party policy in particular were he not doing damage to the case which some of us want to make. What we are arguing for in the new clause is not a special incentive. The strength of the case which I have tried to make out, and the strength of the case which the hon. Member for Croydon, South (Sir W. Clark) made a year ago, is not that this proposal provides anyone with some special incentive that gives an advantage, but that, unless the new clause is accepted, people will suffer from a disadvantage. If the hon. Gentleman insists on talking as if he wants to give people some special advantage, he totally undermines the case which he is making for the co-operative movement.

Mr. Wrigglesworth: I do not accept that. I take the right hon. Gentleman's point that it is a powerful argument, when a Conservative Government are in office, to suggest that mutually owned organisations should be on all fours with institutions registered under the Companies Acts, but I should like to think that he and his right hon. and hon. Friends will also accept from me and my right hon. and hon. Friends that the concept of mutual ownership and co-operative ownership is so desirable that it should be encouraged by other incentives, in addition to the modest incentive of putting it on all fours with company-registered institutions, as the new clause proposes.
I was seeking simply to demonstrate our commitment to the co-operative sector. As you will know, Mr. Deputy


Speaker, for many years many of us have had, and continue to have, long associations with that movement, and we believe that a great deal more should be done beyond putting these institutions on all fours, as the right hon. Member for Sparkbrook is proposing.
I will not go into the details of the proposal which we have made for encouraging the co-operative sector. That will no doubt be appropriate on another occasion. New clause 9 is a limited but helpful step in the direction of giving co-operatives and other voluntary developments support on equal terms with conventionally owned companies. I hope that the Government will respond to the pressure that has come from various parts of the co-operative movement, and that they will seek to make up for some of the damage that their other policies have done by accepting what is, after all, a modest and fair proposal.

Mr. Roger Freeman: I wish to associate myself with the remarks of the hon. Member for Stockton, South (Mr. Wrigglesworth) and of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) regarding not only co-operatives but housing associations. I think that the comments were well taken.
The right hon. Member for Sparkbrook may not be aware that my constituency was and, indeed, still is the home of many well-known co-operative associations, particularly in the footwear industry. At the end of the 19th century, far-sighted employers set up many institutions as workers co-operatives or entities in which the principle of sharing the profits and involving the work force in the management of a company was enshrined. I think that the right hon. Member for Sparkbrook was quite correct. He may be interested to know that my council — which, incidentally, has a Conservative majority — has recently decided to provide finance for our local co-operative development association. One of the best managed co-operatives in my constituency is in Brixworth, which I have visited and which I intend to visit again soon.
Housing associations are very important to my part of the world with its high proportion of elderly citizens who depend a great deal upon the work of institutions such as the Abbeyfield, which in turn depend upon local housing associations for support. Therefore, I agree with the sentiments.
However, I have experienced great difficulty in accepting some of the arguments put forward in the debate. I should like to address some of the arguments, in particular those advanced by the right hon. Member for Sparkbrook. The essence of his argument is that the imputation system, the rate of advance corporation tax, which has been in operation for a decade now, in a sense benefited companies which had a distribution policy and were able to distribute some of their profits by convention or practice. For those entities which by convention or in terms of their own internal statutes or requirements did not distribute profits, his argument was that if one took the old corporation tax rate of 52 per cent., one had to deduct the standard rate of tax, the advance corporation tax, which the company was deducting from the dividend flow and paying to the Inland Revenue, with the shareholder receiving only the net payment and, therefore, 52 per cent., where, in a simplistic world, all the profits were paid out. I make that assumption to simplify the argument, although we know that it is not the case.
At one extreme, if a company paid out all its profits, with a 30 per cent. standard rate of tax and the old 52 per cent. corporaton tax rate, that would bring down the figure to a 22 per cent. rate of tax — mainstream corporation tax, as it is called — which would compare very unfavourably with a lower company rate and, indeed, with the rate at which larger companies would be paying corporation tax. I think that that was the argument that the right hon. Member was advancing.
I have problems with that argument, and I should like to advance three in particular. I will not pursue the obvious argument that companies do not distribute all their profits, but in the argument one would have to make some assumptions about the average rate of dividend distribution in the economy before one could compare those companies which distributed profits with those which did not. I did not pick up the exact calculation which the hon. Gentleman was making on that point, but I know that he shared the point with me.
My three points are as follows. First, it depends on which industry and company one picks before a generalisation can be made about dividend rates. There is no way in which one can make a general argument, as the right hon. Gentleman tried to do, about companies in relation to dividend rates. They vary from industry to industry, from type of company to type of company and from year to year, whether we are in recession or in boom. It may be legitimate to use that argument in a debate, but if the right hon. Gentleman tried to reduce the argument to an amendment or to a new clause to be included in the Finance Bill I think that he would be in serious difficulties because one cannot generalise about the dividend rate. It is a fair debating point, but, in practice and reality, one which cannot be sustained in considering legislation.
I suspect that the right hon. Member for Sparkbrook understands that point. He advanced the argument that a company is interested only in the net cost of its dividends. It assumes that the advance corporation tax that it deducts from dividends and pays to the Inland Revenue is a payment on behalf of shareholders as part of their total tax liability. That is the nature of our tax legislation and I cannot quarrel with it, but the reality is that companies look at their total corporation tax rate, not just at their mainstream rate. That is the rate which is shown in their accounts and which is used by financial analysts and the stock market when it compares the performance of different companies. Companies therefore look at their total corporation tax rate. When the right hon. Gentleman says that he is comparing the 30 per cent. rate for workers' co-operatives, housing associations and friendly societies with a higher rate nominally, but with a lower rate in reality, because of the payment in advance on account of shareholders' liability to tax, that, in the real world, is not the way in which companies look at it. They look at their total corporation tax liability.
Another argument relating to the main philosophical thrust of the right hon. Gentleman's case is that dividends are assessable at the higher rates of tax, not just at the standard rate. He knows that the advance corporation tax that is paid by companies on dividends paid out is added back. The net dividend is grossed up at the standard rate of 30 per cent., the advance corporation tax rate, but the shareholder is liable to higher rates of tax. It is not true to say in a simplistic way that the imputation system to which he referred earlier is simply about the standard rate of tax.


It is not. It is about the part deduction by a company of a shareholder's ultimate liability to tax, but one has to look at the total liability of the shareholder.
The right hon. Member for Manchester, Wythenshawe (Mr. Morris) made an interesting point about rights issues but it seemed to me to be a bogus point. He appeared to argue that the entities that the right hon. Gentleman's new clause encompasses—housing associations, workers' co-operatives and friendly societies — do not have rights issues, whereas companies have rights issues, and that there is injustice, in the sense that corporate shareholders benefit from rights issues whereas this benefit is not available to the owners of the entities that are referred to in the right hon. Member for Sparkbrook's new clause.
Many hon. Members will be aware that if one takes up one's rights in a rights issue all that happens is that the total equity of the company may have grown by the subscription of new cash to the company but that there is no change in the financial status of the individual shareholder who takes up his rights. Therefore, I cannot follow the argument of the right hon. Member for Wythenshawe. If a shareholder does not take up his rights but sells them, he is subject to tax, but he gives up part of his equity ownership in the company. He gains cash through the sale of his rights but he forgoes an equal amount in terms of the value of his remaining ownership in the company, assuming that he remains a shareholder. I do not therefore follow the right hon. Gentleman's argument. The fiscal relevance of rights issues is not relevant to the new clause or to the argument upon it.
As for the main part of the right hon. Member for Sparkbrook's argument, he acknowledged that the small company rate of tax is 30 per cent. That rate is referred to in new clause 9. I imagine that the right hon. Gentleman chose that rate not only because it is the income tax rate but because it is relevant to the rate that is paid by small companies. However, the right hon. Gentleman correctly pointed out that he is addressing his argument not to the smaller entities that would pay 30 per cent. but to the larger entities where the rate of corporation tax will be 35 per cent. in the fiscal year 1986. He argued that for the larger entities paying 35 per cent. one must deduct a proportion of the advance corporation tax on dividends paid out to shareholders. That brings the effective rate which should be borne by the company below 30 per cent.
I do not accept that argument. One should stick to the 35 per cent. rate of corporation tax for the larger entities caught by that rate for two reasons. The first is fiscal simplicity. Many farmers in my constituency choose to be taxed at income tax rates rather than at corporation tax rates. They do not incorporate themselves. That may or may not be wise. I submit that it is for the convenience of the business world that there is a 35 per cent. standard rate of corporation tax that will apply from fiscal year 1986 and a lower rate of 30 per cent. That is widely understood, so I am not in favour, unless there are compelling arguments, of variations.
The second and more important point relates to a matter to which the right hon. Gentleman did not refer, namely, the major capital allowance changes that were announced in the 1984 Budget and incorporated in the Finance Act 1984. He knows that many large companies, although on a nominal rate of 52 per cent., were paying actual rates of corporation tax that were considerably less than that. As

a general rule of thumb in the banking world one assumed, in the analysis of an industry, that the actual rate of corporation tax was between 25 per cent. and 30 per cent. for industry as a whole. What has happened as a result of the Chancellor of the Exchequer's 1984 Budget and the Finance Act 1984 is the reverse of the right hon. Gentleman's argument. The rates of corporation tax for companies have risen in many instances because capital allowances have been withdrawn. The position of entities like co-operatives and housing associations which did not have the benefit of capital allowances has remained unaltered. The effective rates of corporation tax for service companies have fallen, but for manufacturing industries and for some exploration companies they have risen. The actual rate is very close to the nominal rate. From fiscal year 1986 onwards it will be 35 per cent. Therefore, the injustice to which the right hon. Gentleman referred does not exist.

Mr. Wrigglesworth: Is that not an argument for not abolishing capital allowances? Is that not the core of the argument to which the hon. Gentleman should address himself?

Mr. Freeman: As the hon. Gentleman knows, that is an entirely separate issue which has been debated on its merits: whether there should be specific fiscal incentives for capital investment. I am very much in favour of encouraging correct capital investment, but it must be capital investment in either the public or the private sector that will make an adequate return on outlay. The right way to do that is not by the continuation of our very generous capital allowance system but by proper management systems for the review of capital investment projects and other projects to which I have referred in previous debates on the Budget and the Finance Bill and to which I intend to return later.
5 pm
The right hon. Member for Sparkbrook made a speech at the meeting of the Crosland Society at Trinity college on 7 June 1985. I draw the House's attention to the speech because it explains what sort of entities would benefit from the new clause, and what the right hon. Gentleman has in mind as examples of co-operatives. Towards the end of the speech, the right hon. Gentleman said:
We have to realise that if we are committed to a more equal distribution of power as well as of wealth, the old Morrisonian model of centrally controlled public utility does not meet our needs.
The right hon. Gentleman made it clear that old-style nationalisation is no longer relevant to the future of the Labour party or our economy. Some enlightenment from the right hon. Gentleman would be helpful because it is confusing that later in the same speech he spoke about institutions that have been privatised by the Government. The right hon. Gentleman referred to the time
when a privatised utility is returned to public ownership
and spelt out the type of control there would be if Labour renationalises British Telecom, British Aerospace — although that is not a public utility — and British Gas which Conservative Members hope that the Government will succeed in privatisating next Session. What does the right hon. Gentleman mean when he refers to the renationalisation of utilities such as British Telecom and British Gas? What type of control will there be? Will they be genuine workers' co-operatives? The right hon. Gentleman ruled out the Morrisonian nationalized


industries. Does the right hon. Gentleman imagine that if British Telecom is returned to public ownership it will be a gigantic workers' co-operative? That is the only conclusion one can draw from his speech.
I can understand the thinking behind the new clause, if the right hon. Gentleman is serious about his intention regarding the 30 per cent. rate of corporation tax for those entities. Perhaps the real reason is to benefit the utilities that the Labour party would renationalise as workers' co-operatives if, heaven forbid, it is returned to power, because they would be subject to this rate of corporation tax. I hope that the right hon. Gentleman will enlighten the House.

Mr. Stuart Randall: I wish only to add a few words of support for the new clause which aims to overcome the tax penalties that emanated from the Finance Bill last year. All sorts of organisations are affected, including industrial societies and other mutual organisations such as the friendly societies and the various types of co-operatives. We have heard from both sides of the House examples of the effect of the removal of the differential rate of corporation tax on those organisations.
We had a long debate on friendly societies yesterday. Already, we have seen that the Government's action is crushing these organisations. My hon. Friend the Member for Workington (Mr. Campbell-Savours) quoted Mr. Madders, the chairman of the friendly societies liaison committee, who said that the Government's action could result in friendly societies becoming extinct. That would be sad because the societies have a long-established tradition and have been in existence for about 100 years. They have served the people of Britain, especially those on lower incomes and in rural areas. The new clause would help the mutual organisations to come to grips with the severe competition with which they must contend.
The Government's line on friendly societies is that if they want to remain alive they must compete in broader areas of business where they would encounter more forms of taxation. They would have to employ staff to overcome the intricacies of tax problems. They do not have the necessary expertise or manpower. They rely on the voluntary help of people who do not have the skill or the time to deal with the complicated taxation matters which the organisations inevitably must deal with if they are to survive in the competitive areas into which Ministers suggest that they should move.
The Government's removal of the differential rate of corporation tax is an additional crushing action on the friendly societies. We argue our case not only from the economic point of view, but from the social aspect. That aspect is most prominent in my mind when considering the corporation tax treatment of friendly societies.
The local postman often plays the role of the deposit collector in rural areas, especially in the north of England. The postman does his rounds and collects deposits. He makes sure that Mrs. Smith is alive and well by checking the milk bottles on her doorstep. We must consider the friendly societies in that context. Social services have been cut; that is a broader issue and I do not wish to go wide of the point, but the social angle must be taken into account when considering the effect of last year's Finance Bill on mutual organisations.
Some hon. Members have mentioned the effect of the changes on co-operatives and much mention has been

made of housing associations. I regard my constituency as a deprived area in housing terms and hon. Members who represent deprived parts of the country welcome all initiatives to help overcome the housing crisis which has resulted from the Government's crazy economic policy. It is distressing for the co-operatives to be crushed at a time of housing crisis. In my constituency there are 2,640 families in houses unfit for human habitation, houses with black fungus crawling up the wall and so on.

Mr. Tim Eggar: I understand the argument, but so that we may be better informed may we have an estimate of how many more properties would become available if the hon. Gentleman had his way and there was a reduction in corporation tax for housing associations?

Mr. Randall: We are not talking about a swamping action but about a fairly small reduction. The effect will not be massive and the new clause will not change the world, but small improvements can contribute to creating a better society. I do not think that the hon. Member for Enfield, North (Mr. Eggar) would like small co-operatives or housing associations to disappear because they help, in their small way. I see that the hon. Gentleman agrees with me.

Sir Peter Hordern: The hon. Gentleman refers to small co-operatives and friendly societies. What rate of corporation tax do they pay now? Surely they benefit from the differential rate for small companies. Is the hon. Gentleman thinking of the larger co-operatives?

Mr. Randall: My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) made an interesting and useful point about the larger co-operatives when he said that because of competition co-operatives were having to get together and that we were experiencing a "fewer and larger" syndrome. That means that the tax paid by the larger co-operatives makes them uncompetitive compared with their commercial counterparts.

Mr. Eggar: Is the hon. Gentleman saying that, for instance, most of the members of the Co-operative Wholesale Society will benefit because they are covered by section 340 of the Taxes Act? I do not have a copy of that Act but is the hon. Gentleman suggesting ways of helping the Co-op to beat Sainsburys and Tescos? Is that what he is really after?

Mr. Randall: The hon. Gentleman should go to the Library and check whether he is really talking about section 340 of that Act. I have been asked an ill-prepared question and I do not want to waste my time on it. I want to talk about the future of co-operatives.
A specific example of the importance of co-operatives is in high technology. The Labour party is now strongly associated with high technology. I regard the Labour party as the party of the future and of high technology. There is no question about that.
Many small companies involved in high technology are co-operatives. Such businesses, by their nature, are high risk. There is a serious downturn in the electronics industry and this is causing liquidations. The uncertain future and the changes in technology mean that a company might soon be producing obsolete products which it cannot sell and so it will become unprofitable.
One advantage of co-operatives is that the equity can be shared among a number of owners. Many instances of


that have occurred in Scotland. I think of the closure of the British Steel plants. Many organisations have branched out. Joint ownership is laudable and should be encouraged. The removal of the benefits which existed until March last year has had serious effects.
We are talking about helping high technology not in a massive way, but in a small but significant way. My right hon. Friend the Member for Sparkbrook will recall visiting the Earls Court exhibition and speaking to three people who owned a small company. They explained how difficult it was to raise the capital to float the company. They did not intend to expand the business because they could not afford to go through yet another nine months of raising money.
5.15 pm
Such organisations should not be discouraged by an oppressive tax regime. Diverse ownership is the principle behind co-operatives and should be encouraged. It gives employees the opportunity to take part in the management and running of a business.
The new clause is worth supporting. It will ensure that mutual organisations such as co-operatives and friendly societies can go from strength to strength rather than being destroyed.

Sir Peter Hordern: When I first saw the new clause I confess that I was attracted by the notion that co-operatives, friendly societies and housing associations should be relatively well treated compared with other companies. After all, co-operatives and friendly societies have had a long and honourable history. Long before the welfare state the majority of people in Britain were covered by friendly societies.
There is more to the clause than meets the eye. I understand that friendly societies and co-operatives were favourably treated in terms of corporation tax before the changes made last year. The Opposition are suggesting that they should be yet more favourably treated.
I agree about the need to encourage small companies. The hon. Member for Kingston upon Hull, West (Mr. Randall) referred in particular to high technology companies. In passing, the hon. Gentleman said that the Labour party was the party of high technology. When I first came to the House similar claims were made. The Labour party described the trend as the "searing white heat of technology." Shortly after the Labour party came to power, it put its plans in hand in the shape of the national plan. It needed evidence that there was a real interest in technology, and created the Department of Technology. More importantly, it put Mr. Frank Cousins in charge. The reason for placing Mr. Frank Cousins in charge was not—as it might seem to the general public and as we were led by Lord Wilson of Rievaulx to believe — to encourage technology but to find Frank Cousins a job. That job-finding practice has been done before and will no doubt be done again.
I was interested in the remarks made by the hon. Member for Kingston upon Hull, West about encouraging small companies and technology. He was right to say that these companies suffer from an acute shortage of capital because they do not have much of a track record to impress bankers. The fault that the hon. Member for Kingston upon Hull, West ascribes to the present system does not apply to small companies because small companies have

the benefit of the small companies corporation tax rate. I hope that the Minister will tell us how small companies, whether they are co-operatives or industrial provident societies, will be affected by the proposal.
Small companies do not suffer in the way that the new clause tabled by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) suggests. When the Minister replies, I hope that he will say how many co-operatives pay the full rate of corporation tax. My guess is that not many pay the full rate. Most are small, individual, friendly and provident societies that we all want to see thrive. They are doing well under the present corporation tax rate.
The Chancellor's measures taken in last year's Finance Act were intended to avoid distortion in the operation of corporation tax. My hon. Friend the Member for Kettering (Mr. Freeman) made that point in his excellent speech when he said that there had been too much of a buzz and distortion about investment. Companies should concentrate on making profits, and any distortion of the corporation tax in favour of a specific form of money-making activity — for instance, co-operatives and friendly or industrial societies — departs from the principle set out in the Chancellor's measures.
Some distortions do exist in corporation tax. As I see the right hon. Member for South Down (Mr. Powell) present I shall mention one area where distortion arises, and that is in Northern Ireland. I am in favour of a distinctive form of corporation tax for different parts of the country. The system of regional aid and grants has been extremely wasteful and we should reduce the cost of work either by reducing national insurance contributions or corporation tax in the regions most affected by the tax—

Mr. Deputy Speaker (Mr. Harold Walker): Order. We have strayed from the new clause. I hope that we may return to the mitigation of corporation tax liabilities.

Sir Peter Hordern: I apologise, Mr. Deputy Speaker. The new clause invites us to make distortions in corporation tax, and I know that I cannot ask your opinion on that. If distortions must exist they should not be in the techniques of corporation tax or its operation but in its coverage. It is an established practice for grants to be given to firms in Northern Ireland to recover corporation tax.
The substance of the new clause remains to be proved. I understand why the Opposition want to make a case for the co-ops and that some Opposition Members may be sponsored by the Co-operative Wholesale Society. I hope that the Minister will tell us whether the Co-operative Wholesale Society as a trading unit suffers in terms of taxation when compared with such trading units as Sainsburys or the other big multiple organisations. The new clause does not make the case and I believe that the fewer distortions in corporation tax, the better.

Mr. Austin Mitchell: I declare an interest as a member of several co-operative societies, many of which have gone bankrupt. I was a member of the Sowerby Bridge co-operative society and I am a member of the Oxford co-operative society.
The Opposition have a simple motive in tabling the new clause. We want to encourage the co-operative principle and to encourage the co-op which has fallen on hard and tough times. The co-op is not organised on the same basis as the giant organisations and cannot fight Sainsburys, Tesco and Asda. The Government want to put the co-op


on the same competitive footing as the giants in terms of taxation. The co-op is not organised for that form of competition.
The Opposition want to encourage the principle of co-operation and the co-ops. The tax concessions to co-operatives in the rate of corporation tax has been accepted by Labour and Conservative Governments. It originated in the Heath Government, and there is no reason why what the Heath Government giveth the Thatcher Government should take away. The only reason can be that the Thatcher Government have a distaste for the principle of co-operation and for any principle decreed or decided by the Heath Government. That is another manifestation of the difference between the Heath Government, which wisely agreed a distinct rate of corporation tax for co-operatives, and the Thatcher Government, with their extremist composition.
The Opposition seek to repair the damage caused by the Finance Act 1984 by restoring the special tax concession for co-operatives which all previous Governments have accepted.

Sir Peter Hordern: rose—

Mr. Mitchell: I shall not give way.
The Government are clear in their commitment to remove that privilege and to put co-operative societies on the same tax footing as private firms. I know that the Economic Secretary to the Treasury will say that co-operative societies should be treated the same in tax terms, but I say that co-operatives should have special treatment. They are a special form of organisation which deserves a special concession which all Governments have conceded in the past. That is an advantage — not a major advantage—that the co-operatives need because of their peculiar form of organisation and the specific competitive difficulties they face. Their interests are different from crudely and directly motivated, profit-oriented firms. The co-operatives' role is much wider and they have a commitment to serve their members and to advance certain principles in society. Co-operation is only one of those principles. Such aims and objectives merit and justify special treatment.
The Government will doubtless claim the principle of equality. They do not like co-operation, and do not know what co-operation and working together means. They will proclaim the virtue of one system of reduced corporation tax for all. The Opposition say that that is not right or reasonable. The co-operatives deserve a special advantage that they once had and that we are seeking to restore. The advantage springs from the co-operative principle which is not to maximise profits for their shareholders but to further the cause of their members and to maximise the benefits for their consumers by returning any profit or surplus in the system to those members at intervals in the form of the dividend in proportion to their purchases.
The central principle of co-operative societies is a commitment of service to, and a desire to advance and improve the position of, their members. Generally speaking, the members of co-operative societies are not the wealthy in society. Indeed, in most cases they are not even the middle class, because the co-operative principle has always been strongly rooted in working-class areas. Their aim is to improve the position of the less well-off, and that is another argument for the special tax concession that they had and that we are seeking to restore by the new clause.
5.30 pm
Although there have been accusations of giantism against the co-operative wholesale societies, the impact of competition from undoubted giants such as Sainsbury has forced the co-ops to come together to achieve the benefits of strength and size to enable them to face competition. It is unfair, therefore, to tax them with this form of liability when it has been forced on them by the nature of the giants with which they are competing. Nevertheless, the giants among the co-operatives are organised on exactly the same co-operative principle. Although they may be concerned with production, they are organised in the interests of the consumers, their members, rather than in the interests of the profit of their shareholders.
With more than 12 million members in about 500 separate societies, it is clear that the co-operative societies have a role which is worth encouraging. They appeal to millions of people who do not have large spending power. These are people to whom the pence really count and for whom the principle of co-operation—the return of the "divi"—is important.
My hon. Friends and I hold strongly to the view that it is fair to give organisations which perform that important social purpose the advantage which was accepted by all Governments up to the time of the passing of the Finance Act 1984. We want to return the position to the status quo ante Lawson. That position, which we say the societies should have, arises from the nature and organisation of co-operatives. When, in the early 1970s, there was a change in the basis of corporation tax, a Select Committee examined the possibility of changing from the classical system to the imputation system. That Committee received representations from, among others, all interested bodies, including the Co-operative Union and the various co-operative societies. It agreed that the change would be unfair to the co-operatives and that there should be a special rate to recognise their unique role.
When, therefore, the new chit system was brought in, there was a special rate; without that rate, there would have been a massive increase in taxation for co-operative societies. The reason for the distinction was simple. Co-operatives do not make distributions, as companies do, and, as the imputation system gives relief to a business in respect of the advance corporation tax on distributions, the co-operatives would have been paying tax on the full rate of mainstream tax. They were therefore given a special rate in recognition of their special role.
The Government argue that, because they are bringing down the rate of corporation tax, the co-operatives should be on the same basis as other private firms, so that they will all pay the same rate. However, the reasons for the special concession remain. If there was justification for the concession, it remains valid whether at the higher or lower rate.
When the Chanceller introduced his 1984 Budget, the co-operative societies protested against the abolition of their special rate, not because that rate had given them an advantage but because, if there was no special rate, the co-operatives would be liable to corporation tax at the full rate, whatever the full rate was, whereas companies could deduct the tax liability of the shareholder on the distribution.
After that proposal was made, a meeting took place between officials of the Inland Revenue and a deputation from the Co-operative Union. That took place in September of last year, when spokesmen for the Inland


Revenue agreed with the co-operatives that the withdrawal of the special rate would disadvantage the co-ops compared with companies, and they agreed to advise the Financial Secretary accordingly.
The Inland Revenue officials also confirmed at that meeting what had been said by their predecessors in 1971 to the then Select Committee which recommended the special rate in the first place — that there had been no change in the circumstances to alter the co-operatives' position.
That was the situation at that meeting in Somerset house in September of last year. Subsequently, the co-ops received the news that there would be no amendment of the 1984 legislation and that the special rate would be abolished. That seemed to be a negation of the agreement — or at any rate the feeling — of that September 1984 meeting. It seemed an unreasonable decision which bore no relation to the position that the Inland Revenue officials had taken at the meeting. If the grounds were as the officials had then suggested, there should have been a change. That change has not been made, and that is why we are proposing in the new clause that it be made.
Why are the Government, in their zeal to remove anomalies and have a more uniform and simple tax system, so preoccupied with removing only those anomalies which help the mass of the people, particularly the less well-off, rather than the tax perks and advantages of those whom the Conservatives, by and large, represent?
The Government demonstrate that zeal — as the Minister will no doubt do when he replies — single-mindedly against one section of society — those whom my hon. Friends and I represent — whereas when it comes to any similar zeal for uniformity, efficiency and simplicity in the system which might harm the supporters of the Conservative party, it suddenly dries up. The cold glint behind the steel-rimmed glasses turns warm and affectionate, and changes proposed in that direction are suddenly withdrawn.
Let us consider some of the privileges and anomalies that are being attacked, amid howls of protest only from Opposition Members. When it comes to tax concessions which might benefit workplace nurseries or tax changes which might benefit friendly societies and working-class organisations such as the Buffaloes, or to considering postmen's Christmas boxes, the Government are full of zeal for tax reform and efficiency. When we speak of a special concession for the co-operatives, which benefit working-class people and help the humblest in society to improve their lot, giving them more power as consumers, the Government are full of energy and efficiency, bustling with zeal to clean up anomalies. But as soon as we consider anything which harms concessions to the Conservatives in society, it becomes political and cannot be done.
The Government stopped short of the sort of changes, for example, that the Secretary of State for Education and Science wanted to make in the grant system, because that would have harmed their section of society.

Mr. Deputy Speaker: Order. The hon. member must restrict his remarks to the question of the mitigation of corporation tax liability.

Mr. Mitchell: My zeal for the new clause has overcome my normal caution and desire to stay within the rules of order.
There is a case for a special rate for co-operatives to demonstrate the Government's attachment to furthering the cause of co-operation and to demonstrate that we regard co-operatives as something of a higher order and a better form of industrial and economic organisation than the simple profit-oriented greed of the company that has only shareholders. By the new clause, we are therefore giving the comparatively small advantage to the co-operatives that they have always had.
There are various arguments for doing that. The former economics editor of The Times, Mr. Peter Jay, was writing in the mid-1970s about the theme, which has now been taken up in America, of furthering co-operatives as a means of breaking the deadlock in society between capital and labour and ending the constant wages inflation that seemed to be the dominant theme of the economics of the 1970s. There are economic, social and political reasons for recognising co-operatives as a higher form of economic and industrial organisation that should be encouraged.
We have to recognise that at the moment the co-op is not as healthy or as powerful as it was, and it is certainly not the intimidating organisation that Conservative Members have been trying to paint it as. It is having a difficult time in competition with Sainsbury, Asda and Tesco. One reason is that it is a democratic organisation that serves its members and puts their interest higher than sheer greed for profit.
A second reason is that the co-op has social commitments and responsibilities that spring from being a co-operative organisation. All those factors have to be recognised in the way the co-op is run, and if they are recognised, the co-op is put at a competitive disadvantage. We could argue that the clause is not only recognising a higher organisation, but repairing a weakness under which the co-op now labours. It is totally single-minded fallacious pursuit of the principle of tax equality for the Government to kick the co-op when it is in that state, as they did in the Finance Bill last year.
By the new clause we should recognise the unique role and special importance of the co-operatives, and express our desire to encourage that vital social principle.

Sir William Clark: The House started off listening with interest to the hon. Member for Great Grimsby (Mr. Mitchell), but during his speech our interest waned. His special pleading on behalf of the co-operative movement killed his case. If I had anything to do with the co-operative movement, I should not ask him to advocate my case.
The hon. Gentleman talked about the profit motive of companies such as Sainsbury and Tesco and compared that with the co-operative movement. What is wrong with the management of the co-operative movement? Why is it not making profits? Why do people who used to go to the co-operatives now go to Tesco and Sainsbury? The simple reason is that they are cheaper, so that is where the British working man and woman are now buying their goods. Let me make it clear that I have no vested interest in Sainsbury, Tesco, Fine Fare or any other supermarket.

Mr. Eggar: Does my hon. Friend agree that the speech of the hon. Member for Great Grimsby (Mr. Mitchell)


called on people to shop at Tesco or Sainsbury because they are more efficient than the Co-operative Wholesale Society?

Sir William Clark: I am sure that my hon. Friend is right. The special pleading became a little sickening, because in my view the co-operative movement has gone down because it cannot face the competition. When the hon. Gentleman began his speech he spoke about two co-operatives that had gone bankrupt. It is small wonder that they go bankrupt if they cannot face the competitiveness of Tesco, Sainsbury and so on. The co-operatives are owned by their members, and the hon. Gentleman maintains that the mass of poor people go there. If that is so, why are the co-operatives not more successful? The Opposition are always saying that everyone is poor. If everyone is worse off, surely people should be flocking to the co-operatives, which should be thriving, but the reverse is the case, and people are shopping at Tesco, Sainsbury and so on.
One of the best co-operative movements that we have seen in the past few years is the co-operative that has been formed by the National Freight Company. That co-operative works, but before the employee buy-out it was a loss-making organisation. It is now highly profitable. Is it not possible for the co-operative movement to do that? I do not know whether the hon. Member for Great Grimsby has anything to do with the co-operative movement, but if he has I suggest that he either pays a little more attention to why the co-operative movement has gone downhill or resigns from the movement.
I come next to housing associations. The hon. Member for Kingston upon Hull, West (Mr. Randall) did not know what section 340 of the Taxes Act covered. It covers the mutual societies and the rest, which do a good job. Housing associations do a first-class job.
Housing associations have done good work in the sale of the houses and flats they have owned. That is a good thing, but we have to do more. We should not single out any section, because the sale of houses and accommodation of housing associations is an incentive to buy for people who belong to the associations.
I shall trace the history of corporation tax so that we may discuss the subject with more clarity than is evident in the clause tabled by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). If the right hon. Gentleman looks at corporation tax, he will see that it was introduced at a rate of 40 per cent. It was then increased to 45 per cent. and when the Conservative Government took office it came down to 40 per cent. In 1973, as the right hon. Gentleman will recollect, the imputation system was introduced, whereby advance corporation tax became an advantage to distribution—a 30 per cent. advantage.
In an articulate speech of great clarity, my hon. Friend the Member for Kettering (Mr. Freeman) dealt with the matter. If a company distributed the whole of its profits, and if the profits were 100 units, and there was a 52 per cent. rate of corporation tax, that left a possible dividend of 48 units. If the 48 units were grossed up, it would be 70 units. With 30 per cent. ACT off, that brought one down to 48 units. In my reckoning, that meant that the effective cost of corporation tax on a distribution was just over 31 or 32 per cent. That was an advantage to companies that could distribute profits.
Mutual societies, co-ops, and housing associations do not distribute profits in that sense. That was the origin of the special rate for the mutual societies and so on. That special rate was 40 per cent. But then, as has been mentioned, in 1984 my right hon. Friend the Chancellor stopped stock relief and cut down capital allowances. He made the reason perfectly clear last year. He did it so that overall he could cut the burden of corporation tax. It was at 52 per cent., then it was at 50 per cent., 45 per cent. and 40 per cent., and it is coming down to 35 per cent. in 1986, which is one year hence. That reduction in corporation tax is an incentive for our whole economy. I am sure that the right hon. Member for Sparkbrook, who has special responsibility for matters affecting our economic future, will agree. Corporation tax reductions must generate economic activity. That is the idea behind them.
The special rate was and is set at 40 per cent. The Opposition want it to be reduced to 30 per cent. A rate of 35 per cent. should be the lowest level for every mutual society. What happens if the co-operatives and the housing associations do not make huge profits? They are not in business to make huge profits. As the hon. Member for Great Grimsby said, their profits are small. In the past, the co-operatives have enjoyed the advantage of paying dividends fully tax free, which are chargeable against their gross profits. Now they give a discount with their stamps, which are fully allowed for tax purposes.
I congratulate my right hon. Friend the Chancellor on achieving a maximum 35 per cent. rate of corporation tax for next year. The corporation tax level for any business earning £100,000 profit is 30 per cent. The new clause is slightly redundant because most of the mutual societies — the co-operatives and housing associations — make profits below £100,000 and would suffer only 30 per cent corporation tax. This new clause would impose another anomaly on our tax system. If we say that all organisations should pay corporation tax at 35 per cent., let us stop special pleading. Small businesses, small mutual societies, co-operatives and housing associations would be on all fours if this measure were accepted. I trust that my hon. Friend will resist the new clause.

The Economic Secretary to the Treasury (Mr. Ian Stewart): The right hon. Member for Sparkbrook (Mr. Hattersley) explained that the measure followed from a similiar amendment that he moved to last year's Finance Bill. The new clause has enabled us to have an interesting and, in some ways, rather general debate on the societies — the provident societies, co-operatives, housing associations and building societies—that are affected by the new clause.
We have had a wide-ranging debate and it is not easy for me to pick up all the threads. The hon. Member for Stockton, South (Mr. Wrigglesworth) referred to the taxation of housing associations. Under section 341 of the Taxes Act, which applies to approved housing associations, rents received by associations are not liable to tax. Interest paid by associations qualifies for tax relief for their members and the profits on house sales are exempt from capital gains tax. Housing associations are liable to the full rate of tax only if the profits exceed £100,000, when they move beyond the small companies rate. Although most hon. Members would agree that housing associations need encouragement, I believe that the regime under which they operate is favourable.
A number of hon. Members referred to the nature and virtues of co-operatives. The right hon. Member for Sparkbrook suggested that the Government had a prejudice against co-operatives. That is not the case. The hon. Member for Stockton, South spoke of the Co-operative Development Agency's work. My hon. Friend the Member for Kettering (Mr. Freeman) referred to the work of the co-operative development association in his area. The hon. Member for Kingston upon Hull, West (Mr. Randall) referred to the possibility of co-operatives becoming more involved with the high technology sector. Hon. Members generally have recognised the valuable role that co-operatives can play.
The hon. Member for Great Grimsby (Mr. Mitchell) said that he thought that the co-operatives should be especially advantaged and should have special treatment because they particularly look after the interests of consumers whereas companies with shareholders do not. He said that they were suffering from competition from these companies with shareholders and that this was not necessarily fair. They therefore needed special treatment. There is a certain inconsistency in that line of argument. Any company, whether an incorporated or a co-operative body, that looks after the interests of consumers and customers is likely to flourish and any body that neglects them is likely not to do so well. My hon. Friend the Member for Croydon, South (Sir W. Clark) referred to the reasons for the decline in the co-operative movement. I do not think that any of us disagrees with the fact that the cooperative societies — the industrial and provident societies, housing associations and building societies—that are covered by the suggested provisions of the new clause play an important and sometimes central role in various activities in the community. We want them to prosper and develop.
The right hon. Member for Sparkbrook said that he was asking not for special advantages for the co-operatives and the other societies but for comparable treatment with commercial companies. He said that it would be wrong to call the proposed 30 per cent. tax a special rate and that he wanted to ensure that those societies were not disadvantaged. He referred to the "discriminatory pressures" of the 1984 changes in the corporation tax regime for capital and other allowances. He referred to the "injustice" of last year's legislation.
Even if the comments of the right hon. Member for Sparkbrook were justified — I shall endeavour to show that they were not — they conflict with what his colleague the hon. Member for Great Grimsby said. The hon. Gentleman felt that the co-operatives should receive special treatment because they were a higher form of organisation. I do not want to dwell on this difference between Labour hon. and right hon. Members, but it is important in understanding the new clause to be clear about what they said. The right hon. Member for Sparkbrook said that he was not asking for special advantages; he was merely suggesting that last year's changes brought about particular disadvantages for the co-operative societies. He looked back to the introduction of corporation tax in 1965 and then to the significant change made in 1972, from the "classical" system to the "imputation" system. He said that special arrangements were introduced at that time for small companies—the small companies rate—and for the societies because of

their acknowledged special circumstances. That is the point on which we differ, because his argument is that the maximum rate of 40 per cent. which applied to those societies from that date recognised that the industrial and provident societies were in some way disadvantaged by the imputation system and, therefore, that a special rate should be retained to shield industrial and provident societies from the impact of the 1984 corporation tax reforms. I hope that that is not an unfair representation of the right hon. Gentleman's argument.
6 pm
I should like to take the right hon. Gentleman through the arguments, which will show that that is an incorrect interpretation of what happened. It was not the imputation system which damaged the societies from 1972 onwards. The rate of corporation tax which was, at that time, raised from 40 per cent. to 52 per cent. caused the problem. Before the imputation system was introduced, all companies paid the 40 per cent. corporation tax rate. With the introduction of the imputation system and the application of advance corporation tax payments for incorporated companies being offset by a higher rate of corporation tax, which rose to 52 per cent., the societies were damaged, but they were damaged by the rate change and not by the imputation system. It was, therefore, fair that there should be a special rate for industrial and provident societies, not because of the structural change but because it would have been wrong to make them pay the 52 per cent. which was the rate chosen to offset changes effected by advance corporation tax.
When the rate returns to 40 per cent., as now, and goes to 35 per cent. as it will next year, there is no longer a case for retaining a special rate because the industrial and provident societies are not disadvantaged by having to pay a rate above that which operated under the old system. The 40 per cent. rate was introduced, not to advantage them but to stop the 52 per cent. rate disadvantaging them.
The right hon. Gentleman argued that a special rate should be retained to shield societies from the consequences of last year's tax reforms. More than 99 per cent. of the industrial and provident societies pay the small companies rate, which we reduced last year from 38 per cent. to 30 per cent. Like small incorporated companies, if their profits are below £100,000 they are already enjoying a lower rate of corporation tax. Larger societies would pay the normal corporation tax rate. Most building societies pay the small companies rate, and the great majority of co-operative retail societies will be paying the small companies rate.

Mr. Wrigglesworth: May I confirm that the Minister is not misleading the House when he gives such volume figures? How much business do the societies which pay at the higher rate conduct? Many of the societies to which he referred may be substantial but they may conduct little business.

Mr. Stewart: That is a fair point. I was coming to it immediately. I do not intend to mislead the House. The hon. Member for Kingston upon Hull, West mentioned some of the smaller societies. About 20 of the 200 retail societies conduct about 75 per cent. of the turnover. The top 10 per cent. therefore conduct three quarters of the business. The smaller societies mostly benefit from the small companies rate.
The larger co-operatives, housing associations and building societies pay at the full corporation tax rate.


During the 10 or 12 years before last year such societies enjoyed a highly privileged regime. When the imputation system was introduced, the offset for companies between advance corporation tax and the 52 per cent. rate was set to produce a broadly neutral revenue outturn for the incorporated sector. At that stage it did not and could not take account of the influence on rates of tax paid caused by 100 per cent. first-year capital allowances and by stock relief because they had not been introduced. The 100 per cent. capital allowances were introduced after the imputation system and stock relief was introduced in 1974. Those allowances were designed to ameliorate the 52 per cent. basic rate of corporation tax.
If we take into account what happened in the 10 or 12 years that followed, first, inflation turned out to be higher than had been anticipated and, therefore, stock relief came to play a much larger part in the tax affairs of distribution companies. Secondly, there was a period of heavy investment and many companies and societies took the opportunity to shelter their profits from corporation tax through capital allowances. They, therefore, enjoyed a relative advantage through an unintentional combination of circumstances during that time.
All that is happening as a result of the 1984 changes is that the societies are being brought back to a more normal and ordinary basis of tax charge. They will still be better off than under the classical system. They will still be better off than companies because their dividends to members are allowed in full against their taxable profits whereas company dividends suffer a 30 per cent. deduction which is allowable as an offset against advance corporation tax although it does not fully cover the corporaion tax charge. In that respect, societies, co-operatives and so on are at an advantage compared with the incorporated company sector. Although such societies and co-operatives in recent years have taken great advantage—as it was reasonable for them to do — of an extraordinary combination of high capital allowances, high stock relief and a lower ceiling to the corporation tax rate, that is not a regime which we choose to perpetuate. It was a set of circumstances which did well for the societies and I do not begrudge them that. It enabled them to accumulate reserves in a satisfactory way and I hope that they will be useful to the societies. There is no argument for introducing a different system of corporation tax or a lower rate for those societies merely because they were able to take unusual advantage of a set of circumstances in recent years. I therefore ask the House to reject the new clause.

Mr. Hattersley: May I first clear up the distinction—there is not a shadow of difference—that the Minister of State seemed to see between my speech and that of my hon. Friend the Member for Great Grimsby (Mr. Mitchell)? Much to my regret I missed my hon. Friend's speech, but as I understand it he was arguing for the principle of assistance because co-operatives are, in the Minister's words, a "higher form of organisation" which should be given special benefit. I share that judgment. I believe that the co-operative organisation is a superior form of organisation. I should like and hope one day to be able to give them special assistance. My hon. Friend and I are in agreement on that point.
That is a subject, as I know my hon. Friend will agree, for another new clause or for an amendment, not the one that we are debating today. My hon. Friend and I equally agree that the new clause is only a step towards the

superior treatment that we should like to see given to restore the previous position that co-operatives had in the fiscal lexicon.
The most surprising speech of the day was that made by the hon. Member for Croydon, South (Sir W. Clark). As I understand it, he was opposed to the new clause and to the reorganisation of tax liability that I suggested for co-operative societies in particular. This is surprising, because last year when we debated the subject he was the most passionate advocate of the position which the new clause advocates. The hon. Member shakes his head. I have already had the good fortune to quote one paragraph from his speech. Let me quote his peroration in full:
In 1972, the Finance Bill was introduced by a Conservative Chancellor and it was seen that equity should be carried through. I hope that my hon. Friend will either now — if he can say it now all well and good—or between now and Report say that when corporation tax comes down from 50 per cent. to 40 per cent. the differential, whether it is 31 per cent. or something else—I shall not argue the percentage — will be between the top rate of corporation tax and the rate that building societies pay. If it is not, there will be an injustice because building societies and co-operative societies do not have the right to distribute their profits."—[Official Report, 1 May 1984; Vol, 59, c. 286.]
If the hon. Gentleman will forgive me for saying so, he could not have put it more clearly a year ago, yet this afternoon he argued quite the opposite. I do not know why that should be, but the case he made a year ago is much stronger than that which he has made today and was not in any way undermined by the speech of the Minister of State. As I understand the last passages of the speech of the Minister of State, the Government case now is that co-operative societies, housing associations and the rest were unfairly advantaged in 1972. If he is not saying that, I do not understand how he can possibly advance his case.
With corporation tax at 52 to 55 per cent. it was necessary to have a 40 per cent. special rate to meet the needs of co-operative societies because of their special conditions in that they distributed only a small percentage of their profit. If it was necessary when the normal rate was 52 per cent. to have a co-operative rate that met their needs of something like 80 per cent. of the usual figure, why is it not necessary to have 80 per cent. of the usual figure to meet the special conditions of co-operative societies?
It is no good the Minister of State saying or implying that the change in the top rate of corporation tax has absolved the co-operative societies from the need to pay at a rate which penalises them. I gave him three examples — Sheffield, Peterborough and Ipswich. Each of those societies demonstrates that under the new arrangement, which is trumpeted about the country as a reduction in corporation tax, they are now paying more because the new method of calculation excludes them from the special rate. If they were not specially benefited 30 years ago and they are paying more now in comparison with what they might have been allowed to pay had the old arrangements been allowed to continue, the only possible conclusion anyone is able to draw in logic is that there is unfair discrimination against the societies and it operates—I do not know whether by intention or by mistake—because they distribute a very small proportion of their profits.
The Minister if State's answer was wholly unconvincing but not surprising. The speech of the hon. Member for Croydon, South was equally unconvincing but astonishing. In the light of what the Minister of State says we shall divide the House or we shall continue to argue the case of equity for co-operative societies and the proper incentives that they need to multiply and to profit.

Question put, That the clause be read a Second time:—

The House divided: Ayes 197, Noes 267.

Division No. 268]
[6.13 pm


AYES


Alton, David
Freud, Clement


Archer, Rt Hon Peter
Garrett, W. E.


Ashdown, Paddy
George, Bruce


Ashton, Joe
Gilbert, Rt Hon Dr John


Atkinson, N. (Tottenham)
Godman, Dr Norman


Bagier, Gordon A. T.
Golding, John


Barnett, Guy
Gourlay, Harry


Barron, Kevin
Hamilton, James (M'well N)


Beckett, Mrs Margaret
Hamilton, W. W. (Central Fife)


Beith, A. J.
Hardy, Peter


Bell, Stuart
Harman, Ms Harriet


Bennett, A. (Dent'n &amp; Red'sh)
Harrison, Rt Hon Walter


Bermingham, Gerald
Hattersley, Rt Hon Roy


Bidwell, Sydney
Healey, Rt Hon Denis


Blair, Anthony
Heffer, Eric S.


Boothroyd, Miss Betty
Hogg, N. (C'nauld &amp; Kilsyth)


Boyes, Roland
Holland, Stuart (Vauxhall)


Bray. Dr Jeremy
Home Robertson, John


Brown, Gordon (D'f'mline E)
Howells, Geraint


Brown, Hugh D. (Provan)
Hoyle, Douglas


Brown, N. (N'c'tle-u-Tyne E)
Hughes, Dr. Mark (Durham)


Brown, Ron (E'burgh, Leith)
Hughes, Robert (Aberdeen N)


Bruce, Malcolm
Hughes, Simon (Southwark)


Buchan, Norman
Janner, Hon Greville


Caborn, Richard
Jenkins, Rt Hon Roy (Hillh'd)


Campbell-Savours, Dale
John, Brynmor


Carter-Jones, Lewis
Johnston, Sir Russell


Cartwright, John
Jones, Barry (Alyn &amp; Deeside)


Clark, Dr David (S Shields)
Kaufman, Rt Hon Gerald


Clarke, Thomas
Kennedy, Charles


Clay, Robert
Kilroy-Silk, Robert


Clwyd, Mrs Ann
Kinnock, Rt Hon Neil


Cocks, Rt Hon M. (Bristol S.)
Kirkwood, Archy


Cohen, Harry
Lambie, David


Coleman, Donald
Leighton, Ronald


Concannon, Rt Hon J. D.
Lewis, Ron (Carlisle)


Cook, Frank (Stockton North)
Lewis, Terence (Worsley)


Cook, Robin F. (Livingston)
Litherland, Robert


Corbett, Robin
Lloyd, Tony (Stretford)


Corbyn, Jeremy
Lofthouse, Geoffrey


Cowans, Harry
Livsey, Richard


Cox, Thomas (Tooting)
McCartney, Hugh


Craigen, J. M.
McCusker, Harold


Crowther, Stan
McDonald, Dr Oonagh


Cunliffe, Lawrence
McKay, Allen (Penistone)


Cunningham, Dr John
McKelvey, William


Dalyell, Tam
MacKenzie, Rt Hon Gregor


Davis, Terry (B'ham, H'ge H'l)
Maclennan, Robert


Deakins. Eric
McNamara, Kevin


Dewar. Donald
McTaggart, Robert


Dixon, Donald
McWilliam, John


Dobson, Frank
Madden, Max


Dormand, Jack
Marek, Dr John


Douglas, Dick
Marshall, David (Shettleston)


Dubs, Alfred
Mason, Rt Hon Roy


Duffy, A. E. P.
Maxton, John


Dunwoody, Hon Mrs G.
Meacher, Michael


Eastham, Ken
Meadowcroft, Michael


Edwards, Bob (W'h'mpt'n SE)
Michie, William


Ellis, Raymond
Millan, Rt Hon Bruce


Evans, John (St. Helens N)
Miller, Dr M. S. (E Kilbride)


Ewing, Harry
Mitchell, Austin (G't Grimsby)


Fatchett, Derek
Molyneaux, Rt Hon James


Faulds, Andrew
Morris, Rt Hon A. (W'shawe)


Field, Frank (Birkenhead)
Morris, Rt Hon J. (Aberavon)


Fisher, Mark
Nellist, David


Flannery, Martin
Nicholson, J.


Foot, Rt Hon Michael
Oakes, Rt Hon Gordon


Forrester, John
O'Brien, William


Foster, Derek
O'Neill, Martin


Fraser, J. (Norwood)
Orme, Rt Hon Stanley


Freeson, Rt Hon Reginald
Owen, Rt Hon Dr David





Park, George
Smith, Rt Hon J. (M'kl'ds E)


Parry, Robert
Smyth, Rev W. M. (Belfast S)


Patchett, Terry
Snape, Peter


Pavitt, Laurie
Soley, Clive


Pendry, Tom
Steel, Rt Hon David


Penhaligon, David
Stewart, Rt Hon D. (W Isles)


Pike, Peter
Stott, Roger


Powell, Rt Hon J. E. (S Down)
Strang, Gavin


Powell, Raymond (Ogmore)
Thomas, Dafydd (Merioneth)


Prescott, John
Thompson, J. (Wansbeck)


Radice, Giles
Thorne, Stan (Preston)


Randall, Stuart
Tinn, James


Redmond, M.
Torney, Tom


Richardson, Ms Jo
Wainwright, R.


Roberts, Ernest (Hackney N)
Walker, Cecil (Belfast N)


Robertson, George
Wareing, Robert


Rogers, Allan
Weetch, Ken


Rooker, J. W.
White, James


Ross, Wm. (Londonderry)
Williams, Rt Hon A.


Rowlands, Ted
Wilson, Gordon


Ryman, John
Winnick, David


Sedgemore, Brian
Woodall, Alec


Sheldon, Rt Hon R.
Wrigglesworth, Ian


Shore, Rt Hon Peter
Young, David (Bolton SE)


Short, Ms Clare (Ladywood)



Short, Mrs R. (W'hampt'n NE)
Tellers for the Ayes:


Silkin, Rt Hon J.
Mr. Frank Haynes and


Skinner, Dennis
Mr. Sean Hughes.


NOES


Adley, Robert
Chope, Christopher


Aitken, Jonathan
Churchill, W. S.


Amery, Rt Hon Julian
Clark, Dr Michael (Rochford)


Amess, David
Clark, Sir W. (Croydon S)


Ancram, Michael
Clarke, Rt Hon K. (Rushcliffe)


Ashby, David
Clegg, Sir Walter


Atkins, Rt Hon Sir H.
Cockeram, Eric


Atkins, Robert (South Ribble)
Colvin, Michael


Atkinson, David (B'm'th E)
Coombs, Simon


Baker, Nicholas (N Dorset)
Cope, John


Baldry, Tony
Corrie, John


Banks, Robert (Harrogate)
Couchman, James


Batiste, Spencer
Cranborne, Viscount


Beaumont-Dark, Anthony
Currie, Mrs Edwina


Bellingham, Henry
Dickens, Geoffrey


Bendall, Vivian
Dicks, Terry


Benyon, William
Dorrell, Stephen


Bevan, David Gilroy
Douglas-Hamilton, Lord J.


Biffen, Rt Hon John
Dover, Den


Body, Richard
du Cann, Rt Hon Sir Edward


Bonsor, Sir Nicholas
Durant, Tony


Boscawen, Hon Robert
Dykes, Hugh


Bottomley, Peter
Eggar, Tim


Bottomley, Mrs Virginia
Emery, Sir Peter


Bowden, A. (Brighton K'to'n)
Evennett, David


Bowden, Gerald (Dulwich)
Eyre, Sir Reginald


Boyson, Dr Rhodes
Fairbairn, Nicholas


Braine, Rt Hon Sir Bernard
Fallon, Michael


Brandon-Bravo, Martin
Favell, Anthony


Bright, Graham
Fenner, Mrs Peggy


Brinton, Tim
Fletcher, Alexander


Brittan, Rt Hon Leon
Forman, Nigel


Brown, M. (Brigg &amp; Cl'thpes)
Forsyth, Michael (Stirling)


Browne, John
Forth, Eric


Bruinvels, Peter
Fowler, Rt Hon Norman


Bryan, Sir Paul
Franks, Cecil


Buchanan-Smith, Rt Hon A.
Fraser, Peter (Angus East)


Buck, Sir Antony
Freeman, Roger


Budgen, Nick
Gale, Roger


Burt, Alistair
Galley, Roy


Butcher, John
Gardiner, George (Reigate)


Butler, Hon Adam
Gardner, Sir Edward (Fylde)


Butterfill, John
Gilmour, Rt Hon Sir Ian


Carlisle, John (N Luton)
Glyn, Dr Alan


Carlisle, Kenneth (Lincoln)
Goodlad, Alastair


Carlisle, Rt Hon M. (W'ton S)
Gorst, John


Carttiss, Michael
Gow, Ian


Cash, William
Gower, Sir Raymond


Chalker, Mrs Lynda
Grant, Sir Anthony


Chapman, Sydney
Gregory, Conal






Griffiths, Sir Eldon
Neubert, Michael


Griffiths, Peter (Portsm'th N)
Norris, Steven


Grist, Ian
Osborn, Sir John


Ground, Patrick
Page, Richard (Herts SW)


Grylls, Michael
Parris, Matthew


Gummer, John Selwyn
Pattie, Geoffrey


Hamilton, Hon A. (Epsom)
Peacock, Mrs Elizabeth


Hamilton, Neil (Tatton)
Porter, Barry


Hampson, Dr Keith
Powley, John


Hanley, Jeremy
Proctor, K. Harvey


Hannam, John
Pym, Rt Hon Francis


Haselhurst, Alan
Raison, Rt Hon Timothy


Havers, Rt Hon Sir Michael
Rees, Rt Hon Peter (Dover)


Hawksley, Warren
Renton, Tim


Hayes, J.
Rhodes James, Robert


Hayhoe, Rt Hon Barney
Robinson, Mark (N'port W)


Heathcoat-Amory, David
Rossi, Sir Hugh


Heddle, John
Rost, Peter


Henderson, Barry
Rowe, Andrew


Heseltine, Rt Hon Michael
Rumbold, Mrs Angela


Hickmet, Richard
Ryder, Richard


Higgins, Rt Hon Terence L.
Sackville, Hon Thomas


Hill, James
Sainsbury, Hon Timothy


Hind, Kenneth
Sayeed, Jonathan


Hirst, Michael
Shaw, Giles (Pudsey)


Hogg, Hon Douglas (Gr'th'm)
Shaw, Sir Michael (Scarb')


Holt, Richard
Shepherd, Colin (Hereford)


Hordern, Sir Peter
Shepherd, Richard (Aldridge)


Howard, Michael
Shersby, Michael


Howarth, Gerald (Cannock)
Silvester, Fred


Howell, Rt Hon D. (G'ldford)
Sims, Roger


Hunt, David (Wirral)
Skeet, T. H. H.


Hunt, John (Ravensbourne)
Smith, Sir Dudley (Warwick)


Hunter, Andrew
Smith, Tim (Beaconsfield)


Irving, Charles
Soames, Hon Nicholas


Jenkin, Rt Hon Patrick
Speed, Keith


Jessel, Toby
Speller, Tony


Johnson Smith, Sir Geoffrey
Spencer, Derek


Jones, Robert (W Herts)
Spicer, Jim (W Dorset)


Jopling, Rt Hon Michael
Spicer, Michael (S Worcs)


Joseph, Rt Hon Sir Keith
Squire, Robin


Kellett-Bowman, Mrs Elaine
Steen, Anthony


Key, Robert
Stern, Michael


King, Roger (B'ham N'field)
Stevens, Lewis (Nuneaton)


King, Rt Hon Tom
Stevens, Martin (Fulham)


Knight, Greg (Derby N)
Stewart, Allan (Eastwood)


Knight, Dame Jill (Edgbaston)
Stewart, Andrew (Sherwood)


Knox, David
Stewart, Ian (N Hertf'dshire)


Lang, Ian
Stokes, John


Latham, Michael
Stradling Thomas, J.


Lawler, Geoffrey
Sumberg, David


Lawson, Rt Hon Nigel
Tapsell, Sir Peter


Lee, John (Pendle)
Taylor, John (Solihull)


Leigh, Edward (Gainsbor'gh)
Taylor, Teddy (S'end E)


Lewis, Sir Kenneth (Stamf'd)
Temple-Morris, Peter


Lightbown, David
Thompson, Donald (Calder V)


Lilley, Peter
Thompson, Patrick (N'ich N)


Lloyd, Peter, (Fareham)
Thorne, Neil (Ilford S)


Lord, Michael
Thornton, Malcolm


Lyell, Nicholas
Thurnham, Peter


McCurley, Mrs Anna
Townend, John (Bridlington)


MacGregor, John
Townsend, Cyril D. (B'heath)


MacKay, Andrew (Berkshire)
Trippier, David


MacKay, John (Argyll &amp; Bute)
Trotter, Neville


Maclean, David John
Twinn, Dr Ian


McQuarrie, Albert
Vaughan, Sir Gerard


Major, John
Viggers, Peter


Malone, Gerald
Wakeham, Rt Hon John


Mather, Carol
Waldegrave, Hon William


Maude, Hon Francis
Walden, George


Mawhinney, Dr Brian
Walker, Bill (T'side N)


Maxwell-Hyslop, Robin
Wall, Sir Patrick


Merchant, Piers
Waller, Gary


Miller, Hal (B'grove)
Ward, John


Mills, Iain (Meriden)
Wardle, C. (Bexhill)


Miscampbell, Norman
Warren, Kenneth


Moore, John
Wells, Sir John (Maidstone)


Morrison, Hon C. (Devizes)
Wheeler, John


Murphy, Christopher
Whitfield, John


Neale, Gerrard
Whitney, Raymond





Wiggin, Jerry
Younger, Rt Hon George


Wilkinson, John



Wolfson, Mark
Tellers for the Noes:


Woodcock, Michael
Mr. Tristan Garel-Jones and


Yeo, Tim
Mr. Mark Lennox-Boyd.


Young, Sir George (Acton)

Question accordingly negatived.

Clause 1

SPIRITS, BEER, WINE, MADE-WINE AND CIDER

The Minister of State, Treasury (Mr. Barney Hayhoe): I beg to move amendment No. 129, in page 2, line 6, at end insert—
'(3A) With respect to wine or made-wine imported into or produced in the United Kingdom on or after 29th July 1985, Schedule 1 to this Act shall have effect with the substitution—

(a) for the words "of less than 15", in each place where they occur, of the words "not exceeding 15"; and
(b) for the words "or not less than 15" of the words "exceeding 15".'.

Mr. Speaker: I have reconsidered my grouping with this amendment, and now propose to take Government amendment No. 129 on its own, and to take, separately, amendment No. 2, after amendment No. 1.

Mr. Hayhoe: In the Committee debate on clause 5, strong representations were made about the adverse effect of the clause on the import of Cyprus sherry, and the hon. Member for Birmingham, Hodge Hill (Mr. Davis) persuasively and eloquently argued the case for a change. Subsequently, I met the Cypriot Minister of Commerce and Industry and members of the Cyprus wine trade. That meeting was followed by talks with the Customs and Excise, the Ministry of Agriculture, Fisheries and Food, the Cyprus high commission, representatives of the United Kingdom importers and a small deputation led by the hon. Member for Hodge Hill.
It became clear, as a result of all these discussions, that the difficulties did not centre on clause 5 but stemmed from a combination of European Community regulations, which were applied within the United Kingdom from January of last year and which contained an anomaly affecting medium and dry style Cyprus sherries, and the provisions of the 1984 Budget. The full impact on Cyprus sherry of this combination did not come to light last year because it was masked by the importers taking advantage of the loophole on blending that clause 5 is closing. It was not until that loophole was blocked that the serious nature of the Cyprus problem became apparent.
As I said in Committee and subsequently, there was no intention of causing a severe disadvantage to the Cyprus sherry interests when action was taken in 1984. I have sought to establish what is necessary to restore the pre-1984 position for Cyprus sherry. Part of that is the amendment that I now commend to the House.

Mr. D. N. Campbell-Savours: Before the Minister sits down—

Mr. Speaker: Order. The hon. Gentleman has sat down.

Mr. Terry Davis: I should like to thank the Minister of State for his kind words about my persuasion and eloquence in Standing Committee. I raised this issue on behalf of the Labour party and I was


supported in Committee by my hon. Friends the Members for Wrexham (Dr. Marek) and for Kingston upon Hull, West (Mr. Randall). We were acting at the direct request of the Co-operative Wholesale Society, which is one of our biggest importers of Cyprus sherry.
I am assured that the society and the other members of the Wine and Spirit Association regard the Government's amendment as a most satisfactory solution to the problem which we drew to the Minister's attention in Committee. Not only will it avoid the impact of clause 5 of the Bill; it will also restore Cyprus sherry to the tariff classification which it enjoyed two years ago. As a result, the consumer will pay 50p less for a bottle of Cyprus sherry. Cyprus sherry will be cheaper now than it was as a result of the blunder made 12 months ago.
I am not blaming the Minister of State for what happened. It was obvious from our discussions in Committee and our private discussions afterwards that the Minister had not been told about this problem. I should like to pay tribute to his readiness to find a solution which will benefit not only the trade and the consumer, but also the economy of Cyprus. To be blunt, I believe the problem was known to the Government, to the Ministry of Agriculture, to the Foreign Office and to the Customs and Excise. Unfortunately, no one told the appropriate Treasury Ministers. I thank the Minister of State for acting so promptly and for responding so helpfully to our representations.

Dr. John Marek: This amendment is the result of co-operation between the Opposition and the Government. Very often the Opposition plead for something and the Government willy-nilly resist it. I hope the Minister will not take this unkindly, but I believe the situation about Cyprus sherry was not known to him precisely, at least in Committee. It was clear to both sides on the Committee that something was going wrong and that if something was not done quickly a long-established industry would fade away along with all the other long-established industries that have faded away during the course of this Conservative Administration.
I am pleased that the Minister and my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) got together and got to the bottom of the problem. I am pleased that the Minister has said the amendment will put the matter right. The problem in Cyprus may be a small one in relation to industry in this country, but it would have had very serious ramifications for the economy of Cyprus. I am glad that the Minister has solved the problem, that the economy of Cyprus will not be damaged, and that the economy of this country, certainly in the Manchester area and in Birmingham, will not be damaged either.
My hon. Friend the Member for Workington (Mr. Campbell-Savours) wants to intervene when the Minister comes in, if he does. I hope that, in a spirit of co-operation, the Minister will give way so that we can put this matter right and for once have unanimity in the House.

Mr. Randall: My contribution to this debate will be brief because we had a considerable debate in Committee.
I believe that the Government were not aware of the anomaly caused by the change which took place in the 1984 Budget, and the way in which the importers were mixing their various grades of sherry overseas. That affected the imports. That anomaly was having a

detrimental effect not just on the economy of Cyprus and the standard of living of its people, but also upon the retail and distributive outlets in this country.
As my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) pointed out, the Co-operative Wholesale Society is our largest importer of Cyprus sherry. I know that the society was deeply concerned about the effect of this anomaly. I agree with my hon. Friend the Member for Wrexham (Dr. Marek): I am delighted the Minister has had consultations, and from what he said they seem to have been very thorough. If the amendment is accepted, an anomaly will have been overcome, and that will be to the benefit of everybody.

Amendment agreed to.

Mr. Campbell-Savours: On a point of order, Mr. Speaker. The amendment was moved by the Minister. Why did he not seek to reply to the debate?

Mr. Speaker: That is not a matter for me; it is a matter for the Minister.

Clause 3

HYDROCARBON OIL

Mr. K. Harvey Proctor: I beg to move amendment No. 1, in page 2, line 26, leave out subsection (2) and add—
'(2) In section 9(2) of the Hydrocarbon Oil Duties Act 1979 (oil delivered for home use for certain industrial purposes) the words "but do not include the use of oil as fuel or, except as provided by subsection (3) below as a lubricant' shall be deleted and there shall be inserted in its place the following:—
(c) use in the bench-testing of an internal combustion piston engine by a motor vehicle manufacturer or motor vehicle engine manufacturer during the research development manufacture or preparation of such engine or any part thereof
but do not include except as provided in subsection 2(c) above the use of oil as fuel or, except as provided by subsection (3) below as a lubricant".
(3) Subsection (1) above shall be deemed to come into force at six o'clock in the evening of 19th March 1985 and subsection (2) shall be deemed to come into force on the passing of this Act.'.
The purpose of the amendment is to allow fuels used in research and development of automotive engines to be exempt from duty under the Hydrocarbon Oil Duties Act 1979. This is not a new idea or a new amendment. The amendment covers only the bench testing of engines for research and development in the motor industry. The cost to the Exchequer would be around £3 million a year for the industry as a whole. Ford carries out this type of work in my constituency of Billericay and would save about £500,000 a year.
My hon. Friend the Under-Secretary of State for the Environment has been closely involved in EEC moves to reduce pollution levels of vehicle exhaust gases. Like me, he believes that British development in lean-burn technology — that is, altering the ratio of the fuel to air mixture in the engine — is the key to more acceptable emission technology throughout Europe. The motor industry is spending millions of pounds to achieve these improvements, and much of the work is carried out by Ford at Dunton in my constituency, where the company employs 3,316 people. It is the largest employer of labour in my constituency.
This is a tax on innovation and is not levied in some of our overseas competitive markets, such as Germany,


which puts the United Kingdom industry at a serious disadvantage when competing for research work of this nature. Engine research and production is vital for Britain if we are to maintain a high technology base, and is vital for our overseas trade. Ford produced over 780,000 engines last year in the United Kingdom and 46 per cent. of those engines were exported, earning for Britain £250 million.
The research being carried out into new generations of engines will have a continuing benefit for the United Kingdom balance of trade. Ford recently announced a £157 million investment in new engine development at Dagenham in order to produce about 200,000 engines a year, the majority of which will be for export. The developments are the result of long and expensive research activity in my constituency and bring to a total of £370 million Ford's engine investment in the United Kingdom in the last two years.
Lean burn still has enormous development potential; that is why we should be anxious to ensure that the United Kingdom motor industry does not suffer development costs that are not experienced by some of our competitors abroad. There is a case for arguing that all aspects of automotive engine research, which include engine testing both in vehicles and on test rigs, should be excluded, but the difficulty in controlling such exemptions is recognised, and this modest amendment applies only to rig testing where separate fuel storage facilities and records can be easily verified.
I hope that my right hon. Friend will look carefully at the points made in the amendment and be able to regard them with some favour.

Mr. T. H. H. Skeet: I congratulate my hon. Friend the Member for Billericay (Mr. Proctor) on moving the amendment, and I shall be extremely disappointed if the Minister of State does not accept it.
The need for the amendment arises out of section 9 of the Hydrocarbon Oil Duties Act 1979 in which considerable concessions were made. The provision covers the exemption of petroleum products used in the manufacture of an article, for cleaning plant and for certain lubricating purposes. I should not have thought it unreasonable to extend it still further.
My hon. Friend was right to say that any tax on what we call research and development is a tax on innovation, enterprise and the way that the country is likely to go. I should have thought that the amendment was the right course to follow.
It might be helpful to read a short paragraph in a letter that I have received from Ford:
the engines we produce at Dagenham and Bridgend have substantially increased our exports from the UK and offer the prospect of reduced emission levels and improved fuel economy.
The Minister of State should take account of this observation:
But the payment of excise duty is imposing a substantial cost on our research and development programme in the UK. The petrochemical industry is not charged duty on fuel used in this way and certainly we are at a disadvantage compared with companies in Germany where there is a tax rebate on such uses of fuel.
Everyone knows that the motor car industry in the United Kingdom is struggling. We also know that our leading competitors are France, West Germany and elsewhere and that we must be on level terms with them.

We are concerned not only with the lean-burn engine but with the use of ceramics for cylinder blocks. All these have to be experimented with, and many petroleum products have to be utilised to find whether they are suitable for the market. I should have thought that what leads to a better and more efficient engine and a more adaptable way of producing cars was what the Treasury in all its wisdom should encourage.
If my right hon. Friend fears that the fuel might be used for vehicle use on the open road, it could be dyed just as diesel is dyed, and some tracer compounds could be included in it. There are very few sites in which it would have to be organised in the United Kingdom, because it would involve only the main motor companies. Storage facilities could be agreed, and there could be a pipe feed between the storage facilities dedicated for the purpose and the few sites in question.
As my hon. Friend said, we are talking about static engine testing. It is for the motor industry, which is very competitive. Unless R and D work is done, the industry could be going into extremely heavy weather. Therefore, I support my hon. Friend's suggestion. I know that the Minister of State does not want to make many concessions on this occasion, but when the takes account of the importance of research and development to British industry, especially the motor industry, which is under considerable strain, bearing in mind that the amendment will deprive the Treasury of only £3 million a year, I hope that he will regard this as an area in which he should make a concession.

Mr. Terry Davis: I am not unsympathetic to the amendment, even if it comes from what I regard as a surprising source. Nevertheless, I should like to know a little more about the cost involved, and I await the Minister's response before advising my hon. Friends how to vote.

Dr. Marek: I am also not unsympathetic to the amendment, but I wonder whether it is the right way to proceed. I am worried whether there would be sufficient control, and I am not assured that it would add anything significant to research and development. I am all for increasing the sums that companies spend on R and D, but I should have thought that the best way to do that was to provide fiscal incentives generally rather than to go for it piecemeal, as this proposal seems to do.

Mr. Hayhoe: As my hon. Friend the Member for Billericay (Mr. Proctor) said, the purpose of the amendment is to relieve from excise duty hydrocarbon oil—mainly it would be petrol—used in the bench testing by manufacturers of motor vehicle engines. As my hon. Friend said, this is not a new proposal. I understand that this relief or something similar to it has been sought for at least 20 years and that successive Governments have taken the view that it is inappropriate to grant it.
I was glad to note my hon. Friend's comments about the Ford motor company's research and engineering centre in his constituency. I am sure that we all welcome what is being done there to develop a lean-burn engine. Looked at in isolation, the case for giving duty relief on oil used as fuel in research and development of lean-burn motor engines especially is at first sight reasonable. The amount of revenue forgone in this very restricted area would be


small as a proportion of the total yield. But if the relief was so drawn, only a few major motor manufacturers would be involved and the administrative effort would not be great.
Those are the simple arguments in favour of the relief sought by my hon. Friend. However, his amendment is drawn more widely, and there would be a strong probability of further repercussions. The amendment goes further than relief for research and development and seeks relief also for fuel used in bench testing during the manufacture or preparation of engines. It also covers the manufacture or preparation of parts.
The hon. Member for Birmingham, Hodge Hill (Mr. Davis) asked about the cost. From what I have said he will appreciate that it is very difficult to give an accurate estimate.

Mr. Campbell-Savours: Why?

Mr. Hayhoe: I have just explained why. It is very difficult to judge how far the amendment would go in covering the work being done by manufacturers. At the moment the best estimate that I can give is that it would be several million pounds. The best estimate that the Customs can produce of the non-road use of petrol is in the order of £50 million to £100 million, and it could be argued that a very substantial part of that, if not covered directly by the amendment, would be somewhat on all fours with the amendment, and I am sure that the case for equity would be argued by others saying that they should also benefit from it.
There are knock-on effects and, as my hon. Friend said, there are control difficulties, though he thought that they could be overcome. I am not sure whether the control arrangements that apply to diesel oil which is used for particular sections of industry, which are relieved, will be as effective as the hon. Gentleman thinks in dealing with the wider questions of control that would arise, if the amendment were accepted.

Mr. Mark Fisher: Will the Minister give us slightly more information about his estimate of the cost? He seems extremely vague on that subject. What estimates has he received, what consultations did he have, and what representations did he receive that lead him to believe that the cost would be several million pounds?

Mr. Hayhoe: I received that advice from my advisers, who studied the terms of the amendment, which do not necessarily provide what the hon. Members who tabled the amendment wish to suggest. It is important on Report to deal with the words before us. The approach in Committee is different because we can deal more generally with the ideas behind the matter, and if the words are defective we can correct them later. My advice is that several million pounds are involved.

Mr. Skeet: My hon. Friend is not unsympathetic towards the amendment. Will he undertake to consider the matter seriously and to see whether, within his terms, he can assist us? Will he bear in mind that such assistance is provided in Germany and other Continental countries, and that something should be done to help the British motor industry?

Mr. Hayhoe: I am glad to undertake to have further consultations, and a better estimate of the cost involved, especially with a closer definition of the proposed changes, may be made.
The duty on petrol has generally been regarded by successive Administrations—I emphasise that this is not a new matter which has arisen in recent months—as one on the product itself, wherever it is used. Exceptions are made for refineries, fishing boats, and for petrol and oil when it is used as a manufacturing material and furnace fuel. The House will be aware of the reduced rates that apply for aviation gas. The exceptions are few, and successive Governments have maintained that line.
Apart from the control difficulties, which arise from possible abuse, revenue would undoubtedly be lost. I accept that my estimates are not as accurate as those which I normally give.

Mr. Campbell-Savours: The Minister did not take the amendment seriously.

Mr. Hayhoe: I shall continue to ignore the hon. Gentleman's series of interventions from a sedentary position.
The relief proposed in the amendment is not as clearly defined as one would wish. In those circumstances, and following the precedent of many of my predecessors who have replied to similar debates or dealt with similar representations from the industrial interests involved, I cannot commend the change to the House. If the amendment is not withdrawn, I hope that the House will reject it.

Mr. Proctor: I thank my hon. Friend the Minister for replying to the points raised by my hon. Friend the Member for Bedfordshire, North (Mr. Skeet) and me. I was surprised that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) was surprised that I moved the amendment. During the last Parliament, I represented more Ford employees than any other hon. Member, and in this Parliament I represent many Ford workers, some of whom work at the Ford research and development establishment in my constitency, some work in my former constituency of Basildon, and some may work at Dagenham, but live in Billericay, Wickford or other parts of my constituency.

Mr. Terry Davis: I have respected the hon. Gentleman for his consistency in opposing subsidies, and this appears to be a subsidy to research and development.

Mr. Proctor: I am certainly opposed to subsidies in principle. As the hon. Gentleman knows, one represents one's constituents to the best of one's ability, and there is no inconsistency in that.

Mr. Campbell-Savours: rose—

Mr. Proctor: I shall not give way to the hon. Gentleman, who seems to interrupt everyone from a sedentary position, but is not prepared to make a speech. He makes only stupid interventions.
I thank my hon. Friend the Minister for his remarks in replying to the debate. I am grateful for his undertaking to reconsider the point to see whether a more tightly defined amendment can be tabled in future. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Speaker: Order. Before I call the next amendment, it may be appropriate to announce that I have


reconsidered my provisional selection of amendments, and propose to select amendment No. 45 in the name of the right hon. Member for Taunton (Sir E. du Cann).

Clause 5

BLENDING OF CERTAIN WINES TO CONSTITUTE PRODUCTION OF WINE

Mr. Warren Hawksley: I beg to move amendment No. 2, in page 3, line 17, leave out clause 5.
The amendment would remove clause 5 from the Bill. I do not wish to detain the House long, because the matter was debated at length in Committee. Although I was not a member of the Committee, I read its reports, and hoped that there would be a Government amendment to deal with the problem raised by Opposition spokesmen on behalf of my constituents and Cinzano.
Amendment No. 129 dealt with the Cypriot problems, but did not cover the problem of blending for Cinzano. Cinzano resides in my constituency, and for many years has bottled all its vermouth in Telford. The company came in 1977 when the area suffered, as it still does, from high unemployment. Since then, sales of vermouth have fallen by about 20 per cent. in the United Kingdom, and this has obviously created problems for the company. With great relief, last year to save money it was able to start blending the different strengths and so maintain its bottling production in Telford. Clause 5 puts directly at risk about 50 jobs in my constituency and hundreds of jobs throughout the country. I appreciate that that may not be many, but it is important and should be considered.
Before the Budget, my noble Friend Lord Thorneycroft and I put our arguments on behalf of Cinzano to the Minister of State, who listened carefully. Clause 5 arises from a court case which was taken last year by Customs and Excise against Cinzano and which Customs and Excise lost. The question was whether blending was legal or whether it should be liable to double taxation. The House of Lords eventually ruled in favour of my constituents. It is regrettable that the Finance Bill is being used to change that decision, which has been in force for some time. In the past others engaged in blending when it was to their advantage.
In proposing the amendment, I do not blindly argue that the House should accept it to save jobs. Although that is important, sometimes there are more important matters. There are two strong arguments behind Cinzano's case. First, it is desirable to encourage bottling in the United Kingdom. It is better to use British people to bottle imports, and thus create jobs and add value to the raw product, than to import a finished product.
7 pm
Secondly, I am greatly worried about the danger that the proposal will lead to retaliation in other countries. I have in mind particularly the problems in the past in Italy where the sale of Scotch whisky has met with resistance, and has had to be dealt with at the highest level. Italy has acted honourably and has agreed to the sale of whisky in Italy without difficulty. If we introduce a piece of legislation that appears to be aimed at an Italian company, or at vermouth producers generally, Italy may try to retaliate. If that were to happen, it would be to the disadvantage of Britain.

Mr. Campbell Savours: The hon. Member is making a substantial case. He will know that many hon. Members feel strongly on the matter. Some of us intend to press the matter to a Division. Will he vote with us against the Government?

Mr. Hawksley: It would not be the first time that I voted against my own party. I certainly have no fears of voting for what I believe in. If there is a Division, the hon. Gentleman will see how I vote. It is important that the matter should be aired. If hon. Members feel that it is necessary to force it to a Division, that is up to them. It is interesting that in Committee the Opposition did not bother to push the matter to a Division.
Retaliation from foreign countries is a risk that must be considered. Cyprus, South Africa and Australia may be satisfied that, following a previous amendment, problems affecting them will not arise, but the risk that I have mentioned should be borne in mind.
I wish to save jobs in my constituency and I make no secret of it. The arguments in favour of encouraging bottling in Britain, and making sure that we do not put our exports at risk, justify the tabling of the amendment. I hope that I have persuaded the Minister that the arguments are just and that he will accept my amendment.

Mr. Fisher: I am delighted to support the amendment tabled by the hon. Member for The Wrekin (Mr. Hawksley). The burden of his argument — although he was too polite to say it—is that the clause as drafted is nonsense and is simply a response to the situation in which the Government have put themselves. As the hon. Gentleman says, as a result of the clause, 50 jobs could be lost in his constituency. As he is an hon. Gentleman and has spoken eloquently on the subject, I am sure that he will back up what he said and join us in the Division Lobby in voting for the amendment. We shall welcome him on that occasion.
The hon. Gentleman related the background to the clause to the judgment in another place in February this year but, as I am sure he is only too well aware, the clause in this year's Finance Bill arose through a piece of faulty drafting of a measure in last year's Finance Bill when the Government were trying to comply with a judgment of the European Court.
The 1984 Finance Bill widened the differential between light and higher strength wines. Cinzano and other companies which are smaller and less well known saw that that gave them an opportunity to blend higher strength wines, with between 15 and 22 per cent. alcohol, with lower strength wines with less than 15 per cent. alcohol, and thus to pay duty on the proportional strength. As I understand the position, it meant a differential for them of 20p less duty per bottle. It arose from a mistake by the Treasury in its drafting last year, but now the Government are saying that what Cinzano is doing constitutes production.
Will the Minister in his reply say whether he agrees with me that production is already defined in the Alcoholic Liquor Duties Act 1979? I hope that the Minister will confirm my reading of that Act, in which it says that production means a material change in the product through a fermentation of grapes. According to that definition, we are concerned here not with production but with something called blending. It is an old practice, well known in Britain. That is how many fortified wines are made. The


House of Lords was unanimous in ruling in February that blending was legal. Is the Minister now saying that the House of Lords was wrong in defining blending as legal, and that it was wrong in confirming the definition of production contained in the 1979 Act?
The truth is that the 1984 Finance Bill got things wrong and created a situation of which Cinzano has taken advantage. The Government are supposed to be in favour of business initiative but, when they see a company seizing an area of the market in which it can make money and provide jobs and opportunities and income in Britain, they immediately try to close what they consider to be a loophole.
I ask the Government to reconsider their view. They made a mistake last year and they are trying to cover it up this year, but the measure, as it stands, will lead to double taxation. As the hon. Member for The Wrekin has said, it will lead to job losses. It will also be a false economy, because the Treasury is likely to be the loser.

Mr. Freeman: Will the hon. Gentleman explain to the House in a little more detail how double taxation will apply if the company does not blend the product in future?

Mr. Fisher: I understand that the company wants to blend the product and, if it does so, it will suffer double taxation on the importation of the wine and on the blended product that it produces. That is manifestly unfair, and I do not think that even the Government can have intended that result. The hon. Member for Kettering (Mr. Freeman) shakes his head, but I understand that to be the position. The hon. Gentleman, who was a member of the Standing Committee, will recall that the Minister appeared to give some rather cautious and circuitous reassurances about setting up bonding arrangements, but it is my understanding that the Customs and Excise would not allow small companies to have those bonding arrangements, which are seen as a way round double taxation.
I believe that the Government made fools of themselves in their drafting of the Finance Bill last year. They will not concede that they made a mistake, and in addition they are challenging the ruling in the other place. On both counts we shall oppose them, and I hope that the hon. Member for The Wrekin will join us in the Division Lobby.

Mr. Freeman: I was not intending to speak in the debate, but I should like to declare an interest as a director of Martini and Rossi Ltd., which has two-thirds of the vermouth market in branded products in the United Kingdom. Therefore, I am familiar with the problem which has been brought to the attention of the House.
It might be of assistance to the House to know how the industry has reacted to the problems that my hon. Friend the Member for The Wrekin (Mr. Hawksley) has so clearly portrayed. It is important to appreciate that the ending of blending has merely put the industry back to the position in which it was before initiatives were taken by my own company — and certainly Cinzano and other companies—to blend for the purpose of mitigating the effects of the comparatively higher rates of excise duty that were introduced — with the consequential VAT rates — in the Budget last year. As a result of this year's Budget, all that happened is that we in the industry have gone back to the burden of excise and VAT duties which applied before blending.

Mr. Fisher: I would be grateful if the hon. Gentleman, with his expert knowledge of the industry, could clarify one matter. Is it not the case that the duty arrangements have now been altered? They were altered by the 1984 legislation under which duty on a blended wine was payable at the higher rate rather than at the average and mixed rate. That loophole has created these circumstances, and if the so-called loophole is closed there will be job losses. It is that point which has opened up the whole area of change.

Mr. Freeman: All that has happened is that we have gone back to the situation which existed before, whereby the duty was charged on the blended product as opposed to the constituent parts of the product which was blended. If the duty was charged on the constituent parts, the duty was lower than that charged on the blended product. The hon. Gentleman is absolutely right.
My point is a simple one. The hon. Gentleman talks about employment prospects in the industry. That is a perfectly fair point to make, but it is nothing to do with blending. The problems of the industry, to the extent that there are problems, existed before blending because blending has taken place, as the hon. Gentleman knows, for the last nine months only. Therefore, to connect the argument of job losses with blending and with the ending of blending is a little misleading. If there are problems in the industry because of changing tastes, competitive pressures and comparatively high rates of duty in comparison with the duty on still wine — and, as my hon. Friend the Minister of State knows, all those points have been represented to him in the past, and doubtless will continue to be represented to him—I do not think that there is any validity in the argument which relates the employment problems and prospects of the industry specifically to the episode of blending. It is more relevant to connect the problem of employment prospects and the prosperity of the industry to the situation that prevailed hitherto.

Mr. Austin Mitchell: I still do not follow the point that the hon. Member for Kettering (Mr. Freeman) makes. On the amendment — let us not call it a wrecking amendment, but a Wrekin amendment — the hon. Member for The Wrekin (Mr. Hawksley) said quite clearly that a lower duty was payable on the component parts of the blended product than that payable on the blended product. This gave an incentive to blend it in this country, and thus created jobs. The argument is that 50 jobs have been created in The Wrekin which the Government now seek to wreck. In the case of Martini, a larger number of jobs—possibly 200, but I am not sure, because Martini has a bigger share of the market — have also been created by Martini in the process of blending.

Mr. Freeman: I think that it would be fair to say that no new jobs have been created as a result of blending, and in my company no jobs will be lost by the ending of blending. The episode has had a totally neutral effect on employment prospects and employment in my company.

Mr. Mitchell: In that case, is Martini blending abroad? The explicit evidence of Cinzano is that it is blending in this country and that, unless the amendment is carried, 50 jobs will be lost. We have assumed that Martini is behaving with similarly patriotic motives, with the desire


to encourage jobs in the country, and that it, too, will lose jobs unless the amendment is carried. If that assumption is wrong, the argument concentrates on Cinzano, which, of the two companies, is perhaps behaving more honourably.
I hope that the hon. Member for The Wrekin will push the amendment to a Division because it is an important issue. It is well worth taking a stand against the Government. I was hoping that the Minister of State would give us the "Mr. Nice Guy" routine, of which he is the representative in the Treasury, and accept the amendment, realising that the Government have erred. The Government have erred because they are behaving with clear and simple vindictiveness. Indeed, I speak in the debate to criticise the way in which the Government are acting.
The Government have been defeated. They lost in the House of Lords where their arguments were not acceptable. Having lost at the game, they are now changing the rules of the game to get more money out of firms. In so doing, they are destroying jobs — Cinzano jobs, if not Martini jobs. On the evidence that Cinzano has provided, the Government are certainly destroying jobs. While the Government, albeit accidentally, have created 50 jobs in Cinzano as a result of blending, out of vindictiveness, to get their own back for having been defeated in the House of Lords, they are destroying those jobs, so it is worth making a stand on the issue.
The Government argue that the blending was simply a tax loophole because it was cheaper to pay duties separately on low and high strength wines which were then blended rather than to pay duty on an already blended, imported vermouth. In fact, blending has been practised regularly over the years. It is a traditional process. The great gain of the decision was that the blending was being done in this country.
The House of Lords in its unanimous ruling in February this year found that blending is legal, does not constitute production and, therefore, should not be double taxed. It is that decision that the Government are trying to reverse. The Government claim that, because of the practice of blending, they have lost £3 million from Cinzano and £10 million all told. However, in attempting to recoup the money they have lost, the Government are penalising themselves. The loss of jobs implied in the loss of blending in the country will lead to people becoming unemployed and to a loss in PAYE and national insurance contributions. This almost certainly will knock off something like £1·4 million in costs from the £3 million that the Government will gain in taxation. The Government are cutting off their own nose to spite their face in a fit of petty vindictiveness because they were defeated in the House of Lords. It is as simple as that.

Dr. Marek: It is amazing that in the debates on the Finance Bill one Conservative Member after another is pleading for more money to be given by the Treasury in the form of a tax cut or as extra expenditure for some constituency enterprise. In the past hour, we have heard the hon. Member for Billericay (Mr. Proctor) making a case for extra money to be provided for research and development in engines in his constituency, and the hon. Member for The Wrekin (Mr. Hawksley) stating that a special situation exists in his constituency for which extra money should be provided by way of a tax concession to preserve jobs in the constituency.

Mr. Hawksley: Will the hon. Gentleman accept that I am not asking for extra money, only that last year's status quo should continue?

Dr. Marek: There was a status quo situation last year but not the year before. Conservative Members are very good at looking after their constituency interests. Nevertheless, during the past two years they have voted with the right hon. Lady the Prime Minister against all sorts of public expenditure. No matter what kind of public expenditure it was, it was bad, until last week when the Chancellor suddenly said that perhaps public expenditure was good and that it should be increased.

Mr. John Golding: As the hon. Member for The Wrekin (Mr. Hawksley) will vote with us against the Government, is this not the wrong time to chastise him?

Dr. Marek: I am suitably admonished and will not pursue that line of argument. Last year Cinzano took advantage of the loophole. If there is a tax loophole it should be closed, but this one is slightly different. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) said that earlier this year the House of Lords unanimously concluded that blending was not production and that it would be more acceptable if duty was levied on wine at the port of entry; there would be fiscal neutrality. After wine had been imported and duty paid it could be mixed or diluted without the need for further checks by Customs and Excise.
I understand the Government's point of view. They feel that they have been "done" and that legislation has exposed this loophole, as a result of which they have lost revenue. They want to get it back, but I ask the Minister of State, Treasury to think carefully about the matter. If a substantal amount of revenue has been lost something must be done, but if we return to the 1983 position 50 jobs will be lost in Telford. Could not the Government have discussions with Cinzano and find out how small a concession needs to be made for Cinzano profitably to keep open its blending plant in Telford?
Ever since we joined the European Community we have heard about jobs being exported to France, Italy and other countries. For once the position has been reversed. Jobs have come, albeit in an unusual way, to this country and we should do everything that we can to try to keep them here. I hope that the Minister has had discussions with Cinzano. I am sure that the company would not say that the plant will be closed unless the 1984 position is retained; it would be exceedingly silly of Cinzano to adopt that attitude. The concession could be tightened up. Most of the revenue would then be recouped, but a sufficiently significant concession could be made to enable Cinzano to keep open its blending plant in this country. With 4 million people unemployed we must change direction. Manufacturing has not recovered; it is still below the level at which it stood in 1979. The Opposition believe it is most important that these jobs should be retained, and it would not cost very much to keep them here. If the Minister of State has the will, I am sure that he will find the way.

Mr. Campbell-Savours: First, may I refer to what was said by Conservative Members about my sedentary interventions. For some inexplicable reason the Minister of State suddenly took his seat when, it appeared to me., he saw that hon. Members wished to intervene during his speech. Only the Minister knows why he did that.
Since we are debating a subject that is connected with sherry, perhaps I may put to him a question that I had intended to ask during his speech. During his discussions with representatives of the Cyprus Government, were employment questions raised by them? I am informed that they were. Was his judgment on that matter influenced by the possible loss of jobs in Cyprus, in the event of the Government failing to make the necessary changes?
Could it be that the 150 jobs that are at risk at the CWS blending plant at Irlam near Manchester and the thousands of jobs that will be lost in Cyprus affected the Minister's decision? If so, it means that employment implications are on the agenda. If they are on the agenda, the letter that was written by Cinzano to me and to other hon. Members is relevant to our debate. Mr. Farrar, as the managing director of Cinzano, must know his business. I am sure he objects to Government Ministers telling him his business, as may have happened this evening. He said:
As you know, we are extremely concerned about this clause which has made it uneconomic for us to continue blending vermouth in the UK. As a consequence our Telford blending plant is likely to close with the loss of 50 permanent jobs and others in ancillary industries.

Mr. Hayhoe: indicated dissent.

Mr. Campbell-Savours: From a sedentary position, the Minister is shaking his head. He complained about my interventions from a sedentary position, but mine were oral. Perhaps the Minister is concentrating on another issue. If so, he should address himself to this issue. Mr. Farrar says that 50 jobs are likely to be lost. That should be a crucial consideration, particularly if it influences the Minister's judgment about Cyprus sherry. Mr. Farrar continued:
You will not be alone on this issue. We have had support from all sides of the House and there was a fairly lengthy debate on the subject during the Committee stage when I am afraid the Minister stonewalled.
Of the 640 or so hon. Members of this House, only one Conservative Member has said that he supports the Opposition, yet he has been unwilling to give an undertaking that he will vote with us tonight. Where are the hon. Members who support the Opposition? Have they been silenced by the Whips? Have the Whips issued an instruction to Conservative Back Benchers not to speak on this issue and embarrass the Government because of the job implications?

Mr. Fisher: My hon. Friend will remember that in Committee we debated this clause for more than an hour and a quarter. During that time not a single Conservative member of the Committee sought to catch the Chairman's eye and speak. I do not know, therefore, why my hon. Friend is so surprised that Government Back Benchers are reluctant to speak tonight. We welcome the support of the hon. Member for The Wrekin (Mr. Hawksley) and are delighted that he will be voting with us on behalf of his constituents. I do not know where Mr. Farrar got the idea that he has support from the Tory Back Benches, because it was certainly not apparent in Committee.

Mr. Campbell-Savours: Mr. Farrar met Conservative Members. He asked for their support and they undertook that they would give it. In the light of that, Mr. Farrar wrote to me and some of my hon. Friends. I wish to know

why those Conservative Members have been prevented from expressing their support in the Chamber. In reference to the effect of the clause on 50 jobs, Mr. Farrar said:
it affects real people, real jobs"—

Mr. John Major (A Lords Commissioner to the Treasury): Try to keep a straight face.

Mr. Campbell-Savours: The assistant Patronage Secretary suggests that I smiled. He knows the truth about why those Conservative Members have failed—

Mr. Austin Mitchell: Has it occurred to my hon. Friend the Member for Workington (Mr. Campbell-Savours) that the assistant Patronage Secretary might be a consumer of these drinks?

Mr. Campbell-Savours: Perhaps that accounts for the smile of the hon. Member for Huntingdon (Mr. Major). Mr. Farrar said:
it affects real people, real jobs and the interests of industry as well as the consumer. We have fought long and hard — and successfully — through the Courts for the right to continue blending without being subject to punitive taxation. Now the Government wants to overrule the decision of the Courts. Please help us to dissuade them from this action.
We are trying our hardest to persuade the Government against the course that they currently seem bent upon. We seek the support of Conservative Members.
From a constitutional point of view, there is another matter of interest to the House. I am sure that it will appeal to the right hon. Member for South Down (Mr. Powell), because he specialises in European matters. It has been suggested that the Government exercise positive discrimination against European products. As Britain is a member of the European Community, there is much concern about the matter. Some Members of the European Parliament have tabled questions about it. It is hard to understand why the Minister is unwilling to cede the point while those questions remain unanswered. If it could be proved that there were some form of positive discrimination against European products, the Government might wish to reconsider the matter. Even at this late stage, I ask them to take that into account.
According to Mr. Roth's "Parliamentary Profiles" the hon. Member for The Wrekin (Mr. Hawksley) is sensitive to constituency issues. On one occasion, he was so sensitive that he warned the Patronage Secretary and his assistants that his seat would be at risk if he backed entry for Asian fiances. For many hon. Members, that may be an obscure issue.

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. The hon. Gentleman must not stray too far from the amendment.

Mr. Campbell-Savours: I am coming straight back into order, Mr. Deputy Speaker. The hon. Member for The Wrekin expressed his view on that occasion and this is a far more sensitive issue for the people of his constituency. The Labour party in The Wrekin is expressing considerable anxiety about the matter and it hopes that the hon. Member will feel strongly enough to vote against the Government.

Mr. John Golding: Unusually, I do not wish to go all round The Wrekin. However, I congratulate the hon. Member for The Wrekin (Mr. Hawksley) on his courageous stand.

Mr. Campbell-Savours: What courageous stand?

Mr. Golding: I assume that the vote will follow the voice. I know that when the hon. Member for The Wrekin votes, he will be putting his career at stake and his chances of promotion at risk.

Dr. Marek: Non-existent chances.

Mr. Golding: No. My hon. Friends are unusually uncharitable today. The hon. Member for The Wrekin is taking a correct and courageous stand against the Government and he may suffer in consequence. I have already seen sinister individuals trying to talk him out of pressing his amendment. The hon. Gentleman will not be alone in the Division Lobby. He should stick to his amendment. We shall vote with him and give him and his constituents the support that they deserve. We could feel malicious towards the hon. Gentleman because he defeated a first-class Labour candidate at the general election. But we are forgiving and we will stand with the people of The Wrekin in support of their hon. Member who has moved the amendment in their interests.
Some of my hon. Friends are slightly cynical about the intentions of the hon. Member for The Wrekin. I do not share that cynicism. I expect the hon. Gentleman to vote on the amendment, because the issue is so serious to his constituents. The Wrekin has one of the highest unemployment rates in the west midlands.

Mr. Campbell-Savours: It is 21·7 per cent. — 13,000 people.

Mr. Golding: No doubt my hon. Friend will tell me any minute now how many of those people are male, how many are female and how many are young. I know that the youth employment rate in The Wrekin is one of the highest in the country. That is why the hon. Member for The Wrekin has been driven to put his future and his promotion prospects at risk. He is challenging not only the Minister of State, Treasury, but the assistant Patronage Secretary.
Why have the Government brought in the assistant Patronage Secretary? He is a reminder of what might happen to the hon. Member for The Wrekin if he votes in the interests of his constituents against the Government's dirty deed. I am shocked that the Government have not brought in the Patronage Secretary himself. His absence is almost a slight on the hon. Member for The Wrekin. The hon. Member for The Wrekin must go into the Division Lobby. Indeed, he must lead the way into the Lobby.

Mr. Deputy Speaker: Order. I hope that the hon. Gentleman will relate his remarks to the amendment.

Mr. Golding: I am saying that I think that the amendment is of first-class importance and—

Mr. Deputy Speaker: Order. I am talking about the terms of the amendment.

Mr. Golding: The terms are at the heart of the matter for the constituents of The Wrekin.

Mr. Campbell-Savours: Fifty jobs.

Mr. Golding: As my hon. Friend says, we are talking about 50 jobs. It is a matter of good faith. The Government are trying, through legislation, to put jobs at risk. That is the issue tonight.
The House of Lords clearly said "Keep the jobs." What a situation. The House of Lords say that we should not have penal legislation to cripple production. The Law

Lords say "Keep the jobs" but Ministers in the Commons say, "Keep the revenue and do not bother about the jobs." That is nonsense.
Has the Treasury calculated how much revenue it will collect. [HON. MEMBERS: "Come on."] Some hon. Members are taking your role, Mr. Deputy Speaker. What calculations have been made about the cost of the loss of the jobs compared with the additional revenue?

Mr. Campbell-Savours: The cost is £1·4 million.

Mr. Golding: I should prefer the Minister to tell me the cost. What is the cost of the jobs? We are talking not about hypothetical jobs but real jobs. Cinzano has said real people and real jobs are involved. It should be possible for the Treasury to make calculations about the cost to the state of the 50 lost jobs. People who are unemployed are a cost on the state.
We want to know the real cost to the state of the unemployment that will be caused compared with the receipts. After that calculation has been made we shall still want to know the cost to the individual of unemployment. What will the social cost be?
The other day I gave a lad from The Wrekin a lift in my car. He had become a market trader in north Wales. He could not get work in Telford because there is no possibility of work there, so he became an itinerant. He described what was happening. It is tragic. There is no work for young people.

Dr. Marek: The Telford area has been given some status in that it has been given some regional development aid recently. That means that the Government recognise the unemployment difficulties in that area. We are talking not only about 50 jobs but about other jobs in ancillary industries. The loss of 50 jobs might not sound very important but it is not insignificant to the 50 who lose their jobs. The loss of those jobs will have knock-on effects, so the problem is more serious than the Government would have us believe.

Mr. Golding: I think that the Government gave assistance to The Wrekin just to spite us in north Staffordshire. The Government might have taken into consideration the marginality of The Wrekin constituency but not the unemployment level there. Granting assisted area status has nothing to do with the Government's sensitivity to unemployment but more to do with their sensitivity to the constituency's marginal status in election terms and the certainty that the hon. Member for The Wrekin will lose his seat at the next election.
It is disturbing that the Government are prepared to go to the length of overturning a House of Lords decision. That is almost incredible. The House of Lords took a decision but the Government, in their determination to make matters worse in the west midlands, have decided to hit Telford even harder. That is intolerable.
My hon. Friends have concentrated on one aspect—unemployment. That is the most important aspect but they have not addressed themselves to the discrimination against those who drink blended vermouth. I wonder why the Government have chosen to impose a further tax on that alcohol. Blended vermouth is a relatively mild drink, which is less intoxicating than many others. Why has the Treasury chosen to discriminate against people who drink blended vermouth? What is the justification for overturning the decision by the House of Lords?


[Interruption.] It seems that the Whips now want to prolong the debate. The Whips and the Whips' dummies are trying to intervene and I find it difficult to reply to monosyllabic Members on the Front Bench. If they want to ask a question, let them do so.
Treasury Ministers should not sit on their Benches like dummies in Burton's shop window only opening their mouths to utter a single, useless word. The Government must give way to the enormous pressure coming from their own Back Benches. When Cinzano wrote to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher), it told him that it expected enormous pressure to come from the Conservative Back Benches. That pressure has not manifested itself in speeches, but I assume that those Conservative Members who promised the company that they would speak on its behalf—

Mr. Fisher: They had free meals.

Mr. Golding: My hon. Friend the Member for Stoke-on-Trent, Central forgets himself.
I assume that those Conservative Members who promised to support Cinzano have written to the Minister protesting about the decision. Will the Minister tell us how many Conservative Members, after being wined and dined by Cinzano, have written to him to protest about this tax and in support of the amendment? What undertaking has the Minister given to those Conservative Members?
My hon. Friends are cynical because they assume that those Conservative Back Benchers have not spoken in support of Cinzano because they were not sincere when they gave their undertaking. Of course that may not be so. Those Conservative Members may have discussed the amendment with the Minister and told him that they support it. The Minister may have given them some secret undertaking, which has led them to be absent tonight, thinking it unnecessary to give visible and vocal support in the Chamber. The Minister may have told them that he would do what the company wants. Will the Minister tell us what representations he has received and what replies he has given? If he remains seated, some of us will believe that the company was wrong when it said that there would be Conservative support for my hon. Friend the Member for Stoke-on-Trent, Central on this issue.
Unless the Minister can assure us that these missing Conservative Members have spoken or written to him and discussed this matter with him, we will think that, with the honourable exception of the hon. Member for The Wrekin, who will lead us into the Division Lobby tonight, we shall be alone. There will be only one Tory Member in the Division Lobby surrounded by the supporters of Cinzano, who are the Labour Members present. I am waiting to hear what the Minister will say.
I have just received a note telling me that I am requested to shine my pants. I do not know whether that is a parliamentary note, but I am grateful to my hon. Friend the Member for Great Grimsby (Mr. Mitchell) for his advice. I shall conclude and shine my pants by saying that the Opposition are waiting for the leadership of the hon. Member for The Wrekin and we hope that he will not fail us or his constituents tonight.

Mr. Terry Davis: As the hon. Member for The Wrekin (Mr. Hawksley) said at the outset of his speech, I have taken a particular interest in this issue for several reasons.

In moving the amendment, the hon. Gentleman was rather kind to the Government in his summary of the reasons for the problem. He fairly said that the problem began with a decline in sales, but I do not believe that that decline — for which he gave no reason — can be attributed entirely to a change in taste, as was suggested by the hon. Member for Kettering (Mr. Freeman).
There are several reasons. The decline in sales of vermouth began in 1980 with a significant increase in the duty on vermouth. In that year the increase was 30 per cent., and at that point the fall in sales began. That is not surprising. In the past five years total sales of vermouth have declined by 20 per cent. Last year there was a very steep increase in the tax on vermouth. It was a small amount in absolute terms, because it was only 8 per cent., but it was a big increase in relative terms because the duty on wine was reduced by 20 per cent. at the same time. Therefore, the relative duties on vermouth and wine were substantially changed to the disadvantage of vermouth.
In the last five years, the duty on vermouth has risen by 80 per cent. whereas the duty on wine has risen by only 20 per cent. It is therefore not surprising that during those five years there has been such a substantial fall in the sale of vermouth, and that decline in the total market has caused the problem for Cinzano.
The hon. Member for The Wrekin said that it was a relief for Cinzano to start blending last year, but I should remind him that the return to blending was occasioned by the big relative increase in the duty on vermouth. That was not designed to save sales; it was a step to reduce the duty and to improve sales by affecting the retail price of vermouth. Although the duty has risen significantly in the last five years, the retail price of vermouth has risen by much less. Consequently, the increase in duty has tended to be absorbed by Cinzano.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said that the Government made a fool of themselves last year. He is absolutely right, because at the same time as there was a big increase in the duty on vermouth there were changes in the categories of wine and fortified wine. The Government made particular fools of themselves in that context because they created a loophole which the makers of Cinzano were right to use to their advantage in order to alleviate the problem caused by the increase in duty.
The Government then tried to cover up their mistake by going to court. In fact, they took the case all the way to the House of Lords on the argument that if blending took place in this country it was a type of production and, therefore, a tax should be paid on top of the tax that was paid on imported wines. In other words, there would be double taxation. That is what the Government tried to achieve by legal proceedings.
I disagree with my hon. Friends in their analysis because I believe that the hon. Member for Kettering is right to suggest that bonding is the answer to the problem of double taxation. The Minister made the point in Committee — I have examined it carefully, and I think that he is correct — that bonding is the answer for Cinzano. There is a level at which an importer must import wine in order to be given the opportunity to import into bond and to pay tax as the wine leaves bond. I entirely accept that Cinzano is above that level and, therefore, that bonding could be described as an answer.
It is not simply a problem of double taxation. Even if Cinzano uses bonding and blends in bond—so that the


company pays the tax only once, as the wine leaves the bond—it still faces the overall increase in duty of nearly 8 per cent. in five years, and a decline in sales. That increase in duty applies if the wine has been blended in bond. The bonding arrangement simply puts Cinzano back to where it was a year ago, when it began to take advantage of the loophole.
8 pm
I have described it as a loophole, but let me make it clear that I am not criticising the management of Cinzano. On the contrary, it deserves praise for showing flair in spotting an opportunity to alleviate difficulties created for the company by the Government's increase in the total duty on vermouth. Clearly, sharper people work for Cinzano than work for the Customs and Excise. Indeed, a learned judge said that the Government needed not a lawyer but an arithmetician.
There are some people with extremely sharp pencils working for Cinzano, and it is to the credit of the company that it took the opportunity to save jobs at Telford. It is not true to say that blending created those jobs at Telford. There was already a bottling plant there. Those jobs were jeopardised by the decline in sales, a decline that was the result of the Government's increase in the duty on vermouth. The management of Cinzano saw an opportunity to use blending to save jobs, and I gather that there are 50 full-time jobs at the Telford plant.
What are the Government willing to do about those jobs at Telford, if they intend to insist on clause 5? I appreciate the Government's argument on the issue and I have some sympathy with it. However, that does not get them off the hook from the point of view of those jobs at Telford.
Yesterday we were told by the hon. Member for Beaconsfield (Mr. Smith) to devote more time in our debates to the problems of unemployment. That is precisely what we are doing tonight, although that hon. Gentleman is not in his place. The Government have a responsibility to explain what steps they will take to save those jobs at Telford if they insist on blocking the so-called loophole that has been used by Cinzano in the last 12 months.
We can look a stage further and ask what the Government propose to do to create more jobs in blending. My hon. Friend the Member for Wrexham (Dr. Marek) referred to the number of jobs that have been exported from Britain. As a result of the introduction of blending, jobs have been imported into Britain. To the extent that vermouth is sold in this country, it will be blended either in Italy or here. In the last 12 months, some jobs have been saved in Britain by Cinzano. That has represented, in effect, the importation of jobs. That raises interesting opportunities. What other new jobs can be provided in the blending of other drinks by other companies? I do not know whether Martini blends vermouth. Either way, what can be done to encourage that and other companies to create such jobs here?
I was impressed by the arguments adduced by the Minister of State in Committee about the cost of opposing clause 5. He said that if we did not approve the provision, the Revenue stood to lose £10 million. About £3 million of that would be derived by Cinzano. I accept that it is an expensive way of saving jobs to spend £60,000 per job. Indeed, using the £10 million, it would work out at £200,000 per job. I appreciate, therefore, why the Minister regards that as an expensive procedure.
It was not clear from what the Minister said in Committee whether he was talking about the effect of the current blending operations in this country or was referring to potential blending operations. Is that £10 million the amount that has been lost in the last year, and will be lost to the Revenue in the coming year if we do not approve the clause, as a result of blending operations already located in Britain? Or is it the Government's estimate of the money that would be lost to the Revenue if there was an increase in the amount of blending done here and, therefore, an increase in the number of blending jobs that would thereby be created?
We should know the figures because if we are being told of possible lost revenue in respect of only 50 jobs, we need to know whether the Government are adding to the cost money that would create jobs elsewhere in the United Kingdom. We are satisfied, whatever the figures, that 50 jobs are at risk in Telford new town. We must be told what the Government propose to do to save those jobs if clause 5 is approved.
The Government may be wondering whether my hon. Friends and I intend to vote against clause 5. The hon. Member for The Wrekin lost my sympathy when he said that the Opposition did not vote against it in Committee. He will see at column 103 of the Committee proceedings that the Minister assured us that he would examine the points that we had made, with particular reference to Cyprus sherry.
I am not suggesting that the Minister has not fulfilled every assurance that he gave in Committee. It would have been wrong for the Opposition to have voted against clause 5 at that stage when the Minister had given fulsome and ready assurances not only to consider the points that we had made but to meet a deputation led by Opposition Members. That is why we did not press the point to a vote in Committee.
Not having been a member of the Committee, the hon. Member for The Wrekin may not have been aware of everything that was said at that stage, and he could not have been aware of the flavour of what was said. It would have been discourteous and ungenerous of us to have voted against the Government on this issue then, particularly as we now see that the Minister of State's assurances have been fully fulfilled, for example, in relation to the previous amendment dealing with Cyprus sherry.
We are now concentrating on the issue of vermouth, the jobs at risk at Cinzano and jobs which may be at risk in other companies. We are also concerned with jobs that could be created if only we imported blending jobs into Britain, instead of leaving them in other countries in the Common Market. I await the Minister's explanation before advising my hon. Friends on how to vote on the amendment.

Mr. Hayhoe: This has been a curious debate, since it has taken place by courtesy of my hon. Friend the Member for The Wrekin (Mr. Hawksley). Those outside the House who are not familiar with our procedures may have thought that Opposition Members, who have largely spoken in the debate, were so concerned over the matter that they were determined to have the debate on the motion that clause 5 stand part of the Bill.
That is not the case because the debate is being held wholly by courtesy of my hon. Friend the Member for The Wrekin. If he had withdrawn his amendment last night, there would have been no possibility of Opposition


Members having this debate. Normally in these circumstances, if hon. Members are determined to make their point of view heard, they sign amendments so that they cannot be withdrawn. Either Opposition Members were not sufficiently wise to follow the normal parliamentary practice and sign my hon. Friend's amendment, or they were prepared to leave the decision on whether there should be a debate, first to Mr. Speaker, to see whether he would select the amendment, and then to my hon. Friend—

Mr. Campbell-Savours: rose—

Mr. Hayhoe: I appreciate the hon. Gentleman's emotion at having been caught out on the procedural inadequacies of his and his hon. Friend's actions.

Mr. Campbell-Savours: Is the Minister not aware that he casts a slur on his hon. Friend the Member for The Wrekin (Mr. Hawksley)? His hon. Friend, as an honourable Gentleman, would never have withdrawn from the Notice Paper an amendment that was crucial to his constituents. We placed our faith, and were right to do so, in his hon. Friend. We are supposed to be honourable Gentlemen. The Minister should apologise to his hon. Friend.

Mr. Hayhoe: I think that my hon. Friend will be able to use what has just been said in campaigning in his constituency. I do not think that I have heard such an open-ended compliment or endorsement of a Member of Parliament by Opposition Members for a long time. Although I know that my hon. Friend will have no difficulty in defeating any candidate who may be put up by the Labour party, that full and forthright endorsement of his position will be noted by him, and he will take advantage of it.
I reiterate the point that the debate and all the speeches that we have heard from Labour Members are wholly by courtesy of my hon. Friend the Member for The Wrekin. I hope that those who study debates in the House and are concerned with the way in which we deal with the important matter of excise duty will read with care all that has been said on this occasion. That will be to their advantage, and I hope that they will draw interesting conclusions from what has been said.
Most of the comments that have been made have concentrated on the issue of jobs, particularly the 50 jobs at the bottling plant in Telford. Some hon. Members who participated in the debate do not appreciate that, before the Budget changes of 1984, Cinzano was imported in bulk and bottled in this country. The blending was the bonus that flowed from the changes made in 1984. Those changes allowed producers of blended products, if those products were blended from two different levels of alcohol in the liquor, to pay less duty than would be paid in respect of the final product if it had been imported or manufactured in accordance with the law as it then stood. As has been said, that matter was taken to the courts, and the House of Lords, in its judicial capacity, ruled that the Customs and Excise view was incorrect and, as a result, the blending taking place was perfectly legal and proper.

Mr. Fisher: rose—

Mr. Hayhoe: Let me deal with points that the hon. Gentleman made in his speech. I noted with interest the

deference that he paid to the House of Lords and the great unwillingness of Opposition Members even to contemplate overturning a judicial decision by the House of Lords. I am a more robust democrat and a more robust believer in the House of Commons. I believe that in the House of Commons we are perfectly justified in looking at the state of the law that has been determined by the House of Lords—no higher body could so determine it—and deciding that, if we do not like that provision of the law, we can bring to Parliament proposals for change. That is the democratic method, and it is what we are doing in clause 5.
I am astonished that Opposition Members should seek to elevate the decisions of the House of Lords into a constitutional doctrine and that their respect and support for the House of Lords are so intense that the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) should criticise me and other members of the Government for coming forward—

Mr. Fisher: Will the right hon. Gentleman give way?

Mr. Hayhoe: I have listened to a long debate from Opposition Members, and I am wholly entitled to reply to the points that were made.
The 50 jobs at Telford were crucial to the issue. During the debate in Committee the hon. Member for Birmingham, Hodge Hill (Mr. Davis) properly referred not only to those 50 jobs at Telford but to the 150 jobs at Irlam involved in bottling and blending Cyprus sherry. It was the hon. Member for Hodge Hill who reasonably and courteously congratulated me only a short time ago on having brought forward amendments that make the blending of Cyprus sherry unnecessary. Therefore, if the 150 jobs at Irlam are involved purely in blending, they may well be at risk.

Mr. Terry Davis: There may be some misunderstanding between us. I have checked this point. There would not be any loss of jobs at Irlam as a result of amendment No. 129.

Mr. Hayhoe: In other words, the removal of the need to blend at Irlam is not the determinant; and it would not be with regard to Cinzano, either. I had discussions with representatives of Cinzano, who came to see me before the Budget. I asked the specific question: could the jobs be guaranteed at Telford if the House of Lords judgment—the discussion took place even before we knew that judgment—went against the company and in favour of Customs and Excise? Alternatively, I asked, what would happen if we changed the law? I was not given a categorical assurance about that.

Mr. Davis: The Minister of State will accept my assurance that I checked with both companies and, just as I have been assured that the 150 jobs are not in jeopardy at Irlam as a result of amendment No. 129, I have also been assured that the 50 jobs at Telford are very much in jeopardy as a result of clause 5. I do not make the point in any partisan sense. I believe that those are the facts.

Mr. Hayhoe: Those are representations that have been made to the hon. Gentleman. I note what he said.
It is absurd to say that we should maintain a loophole in the excise duty provisions to allow that blending to take place, as that would create an unfairness, since the blended product would have a lower rate of duty than exactly the


same product that had been blended outside the country or manufactured at the same level of alcohol outside the country. I do not believe that that method of job creation or protection would stand up to intensive survey. As has been admitted, the actual cost of those jobs would be considerable.
There could also be the adverse knock-on effects on others involved in the drinks business, who would be hurt by the unfairness and inequity of letting that "loophole" continue—I use the word that was used by Opposition Members. All that I have heard in the debate convinces me of the wisdom of the Government's proposal to maintain clause 5 in the Bill. I hope that the House will so maintain it.

Mr. Hawksley: I thank the Minister of State for his reply to the debate. We have had a good debate, which has been lively and longer than many of us had thought.
Fifty jobs in my constituency are important. I am glad that we have had an opportunity to discuss them. The hon. Member for Newcastle-under-Lyme (Mr. Golding) talked about the assisted area status aid that had come to Telford, which might help us to create more jobs there. He could have mentioned many other things that the Government have done to help Telford. We have had the new hospital and motorway, the enterprise zone and urban aid grants, which should create thousands of jobs. However, I still believe that, in spite of the thousands of jobs that the Government are creating there, those 50 jobs are very important. I do not ask—not that the Opposition would agree anyway—for leave to withdraw the amendment. I leave it to the House to decide how to deal with it. If hon. Members wish to support it, they know what to do.

Question put, That the amendment be made:—

The House divided: Ayes 65, Noes 188.

Division No. 269]
[8.19 pm


AYES


Abse, Leo
Hawksley, Warren


Alton, David
Haynes, Frank


Anderson, Donald
Hogg, N. (C'nauld &amp; Kilsyth)


Archer, Rt Hon Peter
Home Robertson, John


Ashdown, Paddy
Howells, Geraint


Barron, Kevin
Johnston, Sir Russell


Beith, A. J.
Kennedy, Charles


Bennett, A. (Dent'n &amp; Red'sh)
Kirkwood, Archy


Bidwell, Sydney
Leighton, Ronald


Blair, Anthony
Livsey, Richard


Boyes, Roland
McDonald, Dr Oonagh


Brown, R. (N'c'tle-u-Tyne N)
Marshall, David (Shettleston)


Bruce, Malcolm
Maxton, John


Buchan, Norman
Meadowcroft, Michael


Callaghan, Rt Hon J.
Owen, Rt Hon Dr David


Callaghan, Jim (Heyw'd &amp; M)
Parry, Robert


Campbell-Savours, Dale
Pavitt, Laurie


Clwyd, Mrs Ann
Pendry, Tom


Cocks, Rt Hon M. (Bristol S.)
Penhaligon, David


Cohen, Harry
Randall, Stuart


Cowans, Harry
Rees, Rt Hon M. (Leeds S)


Craigen, J. M.
Ross, Stephen (Isle of Wight)


Davis, Terry (B'ham, H'ge H'l)
Sheerman, Barry


Dewar, Donald
Skinner, Dennis


Dixon, Donald
Steel, Rt Hon David


Dormand, Jack
Strang, Gavin


Duffy, A. E. P.
Thompson, J. (Wansbeck)


Dunwoody, Hon Mrs G.
Wainwright, R.


Eastham, Ken
Wilson, Gordon


Fatchett, Derek
Wrigglesworth, Ian


Fisher, Mark



Forrester, John
Tellers for the Ayes


Golding, John
Dr. John Marek and


Gould, Bryan
Mr. Austin Mitchell.


Hamilton, James (M'well N)






NOES


Adley, Robert
Heathcoat-Amory, David


Alexander, Richard
Heseltine, Rt Hon Michael


Amess, David
Hind, Kenneth


Ancram, Michael
Hirst, Michael


Aspinwall, Jack
Hogg, Hon Douglas (Gr'th'm)


Atkins, Robert (South Ribble)
Holt, Richard


Atkinson, David (B'm'th E)
Howard, Michael


Baker, Nicholas (N Dorset)
Howarth, Gerald (Cannock)


Baldry, Tony
Howell, Rt Hon D. (G'ldford)


Batiste, Spencer
Hunt, David (Wirral)


Beaumont-Dark, Anthony
Hunt, John (Ravensbourne)


Bellingham, Henry
Hunter, Andrew


Benyon, William
Jessel, Toby


Bevan, David Gilroy
Jones, Robert (W Herts)


Body, Richard
Joseph, Rt Hon Sir Keith


Boscawen, Hon Robert
King, Roger (B'ham N'field)


Bowden, Gerald (Dulwich)
Knight, Greg (Derby N)


Braine, Rt Hon Sir Bernard
Knight, Dame Jill (Edgbaston)


Brandon-Bravo, Martin
Knox, David


Bright, Graham
Lang, Ian


Brinton, Tim
Lawler, Geoffrey


Brittan, Rt Hon Leon
Lawson, Rt Hon Nigel


Brooke, Hon Peter
Lee, John (Pendle)


Brown, M. (Brigg &amp; Cl'thpes)
Leigh, Edward (Gainsbor'gh)


Browne, John
Lewis, Sir Kenneth (Stamf'd)


Bruinvels, Peter
Lilley, Peter


Burt, Alistair
Lloyd, Ian (Havant)


Butcher, John
Lord, Michael


Butler, Hon Adam
McCurley, Mrs Anna


Butterfill, John
MacGregor, John


Carlisle, John (N Luton)
MacKay, Andrew (Berkshire)


Carlisle, Kenneth (Lincoln)
MacKay, John (Argyll &amp; Bute)


Carlisle, Rt Hon M. (W'ton S)
Maclean, David John


Carttiss, Michael
Major, John


Chalker, Mrs Lynda
Mates, Michael


Chapman, Sydney
Mather, Carol


Chope, Christopher
Maude, Hon Francis


Clark, Sir W. (Croydon S)
Mawhinney, Dr Brian


Clegg, Sir Walter
Maxwell-Hyslop, Robin


Coombs, Simon
Merchant, Piers


Cope, John
Miller, Hal (B'grove)


Corrie, John
Mills, Iain (Meriden)


Cranborne, Viscount
Moore, John


Currie, Mrs Edwina
Murphy, Christopher


Dover, Den
Neale, Gerrard


du Cann, Rt Hon Sir Edward
Norris, Steven


Durant, Tony
Osborn, Sir John


Edwards, Rt Hon N. (P'broke)
Page, Richard (Herts SW)


Evennett, David
Parris, Matthew


Fairbairn, Nicholas
Pattie, Geoffrey


Fallon, Michael
Peacock, Mrs Elizabeth


Fenner, Mrs Peggy
Percival, Rt Hon Sir Ian


Fletcher, Alexander
Porter, Barry


Forman, Nigel
Powley, John


Forsyth, Michael (Stirling)
Proctor, K. Harvey


Forth, Eric
Rees, Rt Hon Peter (Dover)


Fowler, Rt Hon Norman
Roberts, Wyn (Conwy)


Fox, Marcus
Robinson, Mark (N'port W)


Fraser, Peter (Angus East)
Roe, Mrs Marion


Freeman, Roger
Rowe, Andrew


Gale, Roger
Sackville, Hon Thomas


Gardiner, George (Reigate)
Sainsbury, Hon Timothy


Gardner, Sir Edward (Fylde)
Sayeed, Jonathan


Garel-Jones, Tristan
Shaw, Giles (Pudsey)


Glyn, Dr Alan
Shaw, Sir Michael (Scarb')


Good lad, Alastair
Shelton, William (Streatham)


Gower, Sir Raymond
Shepherd, Colin (Hereford)


Grant, Sir Anthony
Silvester, Fred


Gregory, Conal
Sims, Roger


Griffiths, Sir Eldon
Skeet, T. H. H.


Griffiths, Peter (Portsm'th N)
Smith, Sir Dudley (Warwick)


Grist, Ian
Smith, Tim (Beaconsfield)


Ground, Patrick
Soames, Hon Nicholas


Gummer, John Selwyn
Speed, Keith


Hamilton, Neil (Tatton)
Speller, Tony


Hanley, Jeremy
Spencer, Derek


Havers, Rt Hon Sir Michael
Spicer, Jim (W Dorset)


Hayes, J.
Spicer, Michael (S Worcs)


Hayhoe, Rt Hon Barney
Stern, Michael






Stevens, Lewis (Nuneaton)
Vaughan, Sir Gerard


Stevens, Martin (Fulham)
Viggers, Peter


Stewart, Allan (Eastwood)
Waldegrave, Hon William


Stewart, Andrew (Sherwood)
Walden, George


Stewart, Ian (N Hertf'dshire)
Waller, Gary


Stradling Thomas, J.
Ward, John


Sumberg, David
Wardle, C. (Bexhill)


Taylor, John (Solihull)
Watson, John


Taylor, Teddy (S'end E)
Wells, Sir John (Maidstone)


Temple-Morris, Peter
Whitney, Raymond


Thompson, Donald (Calder V)
Wilkinson, John


Thompson, Patrick (N'ich N)
Yeo, Tim


Thorne, Neil (Ilford S)
Young, Sir George (Acton)


Tracey, Richard



Trippier, David
Tellers for the Noes:


Trotter, Neville
Mr. Archie Hamilton and


Twinn, Dr Ian
Mr. Michael Neubert.

Question accordingly negatived.

Schedule 3

AMENDMENTS OF ALCOHOLIC LIQUOR DUTIES ACT 1979

Amendment made: No. 58, in page 106, line 21, leave out 'be omitted' and insert
'cease to have effect on the coming into operation of regulations under section 71A of the Alcoholic Liquor Duties Act 1979.'.—[Mr. Hayhoe.]

Clause 13

TAX EVASION: CONDUCT INVOLVING DISHONESTY

Mr. Archy Kirkwood: I beg to move amendment No. 141, in page 9, line 33, leave out from 'conduct' to end of line 34 and insert 'is dishonest'.

Mr. Deputy Speaker (Mr. Harold Walker): It will be convenient also to take Government amendment No. 3.

Mr. Kirkwood: The amendment would result in clause 13 reading:
(1) In any case where,—

(a) for the purpose of evading tax, a person does any act or omits to take any action, and
(b) his conduct is dishonest

he shall be liable, subject to subsections (4) and (5) below, to a penalty equal to the amount of tax evaded or, as the case may be, sought to be evaded, by his conduct.
As will be clear to those hon. Members who served on the Committee, clause 13 introduces a general anti-dishonesty offence which is punishable by a civil penalty equal to the tax evaded, although that can be reduced by half at the discretion of the Customs and Excise if the taxpayer cooperates. To commit the new civil offence of tax evasion, the taxpayer's conduct must be shown to involve an element of dishonesty as clause 13(1)(b) stands. In Committee it was recognised that the phrase "element of dishonesty" could be interpreted differently and that that could give rise to uncertainty.
The phrase "element of dishonesty" taken with the words
(whether or not it is such as to give rise to criminal liability)
seems designed to produce an offence which is wider in scope than the existing criminal offence under section 38 of the Value Added Tax Act 1983 and wider than the offence recommended by the Keith committee which envisaged that the new offence of civil fraud which is created in the Finance Bill would be defined as
an act or omission with dishonest intent

and that the decriminalising of the offence of fraud should mark a difference in investigatory techniques rather than a difference in the essential nature of the conduct. That provoked the Law Society, amongst others, to say:
We recommend that, in view of the importance and objectives of this new civil offence, uncertainty over the scope of it should be removed by deleting the present wording of subclause (1)(b) and replacing it by: 'his conduct is dishonest'.
We fully recognise the need to expedite timeous VAT payments. We also recognise that the Government have made the improvements that were carefully worked out by the Keith committee. Those improvements which make a distinction between civil and criminal penalties are largely welcome.
The hon. Member for Beaconsfield (Mr. Smith) tabled a similar amendment in Committee which was not selected for debate. The Government seek to amend the clause in response to the discussions that took place in Committee, but I feel that amendment No. 141 is to be preferred because it is clearer and avoids any element of doubt. Amendment No. 141 which seeks to add the words "is dishonest" is different from the Government's proposal which suggests inserting the words "involves dishonesty". That may seem a small distinction, although amendment No. 141 seeks in addition to remove the words in the brackets, but I hope to be able to explain that there is a considerable difference.
The criminal test is whether the act, or omission, was done with the intention of evading tax. To a simple Scots criminal lawyer like myself, the test is an easy one. In Scots law terminology it involves an element of mens rea. If there is a wilful intention to avoid tax, there is a criminal offence. Using the Scots criminal law test, the act or omission is either dishonest or it is not. Before the Committee stage I could not for the life of me understand what an "element of dishonesty" could be. The Minister was asked by the hon. Member for Stretford (Mr. Lloyd) whether he would expand on that. I agree that some of these matters are complicated but on 16 May the Minister gave the definition as:
a dishonest act involving a £1,000 evasion might be part of a £5,000 fraud for which the whole fraud of £5,000 was supported by documentary evidence or a general admission. In those circumstances, it would be reasonable on the civil standard"—
the new standard that has been adopted by the Government—
of probability to accept that the offence was the evasion of £5,000, even though the precise evidence attached the dishonesty only to one part of that amount. Those involved might have left the country, and it might be impossible to gain the evidence from elsewhere."—[Official Report, Standing Committee B, 16 May 1985; c. 130.]
I have given that matter a great deal of thought, and I do not think that the Government's amendment is good enough. An element of doubt remains if the Bill talks about "involving dishonesty". That is ambiguous. If the Minister's explanation is right and in future the Customs and Excise will be able to catch much larger sums of money, although it can prove only a small part of the amount, and impose a civil penalty on the global amount, however big, that gives an unacceptable power to the commissioners.
That would create a bad precedent. We must bear in mind that we are not dealing with the criminal courts. We are dealing with an administrative branch of the law. The Government already have the additional benefit of the civil test of the burden of proof — on a balance of probabilities—as opposed to the criminal test—beyond


reasonable doubt. That should be more than enough to enable the Government to catch those people guilty of this new civil offence.
The changes are too draconian. They give far too much power to the commissioners. The clause will cause a great deal of uncertainty. There will be misinterpretation and problems will be caused.
I support the view taken by the Law Society and many other people in Committee and outside the House that the Government's amendment does not go far enough. I hope that the Minister will consider, even at this late stage, adopting the amendment in my name rather than the one he is proposing to move later on.

Sir William Clark: Mr. Deputy Speaker, may I speak to the following two amendments which you have been kind enough to say may be discussed with this one?

Mr. Deputy Speaker: I remind the hon. Gentleman that with amendment No. 141 we are discussing only Government amendment No. 3.

Mr. Tim Smith: We had a long debate on this matter in Committee. The words found to be objectionable were "an element of". The Government are proposing to remove those words and I therefore welcome the Government amendment.

Mr. Tony Blair: It is difficult to see how far this debate is a semantic one and how far it is a real one and I appreciate the Government's difficulties. It is fair to say that most of the debate in the Standing Committee was about the words "an element of dishonesty". It was felt that the words "an element" brought a degree of confusion into the proceedings which was regrettable. The Minister said that he would look at it and he has done so and deleted those words. The difficulty, on reflection, and reading what he said in Standing Committee, is that there is some confusion in the mind of the Government as to exactly what they want the nature of this new civil fraud to be. The difficulty arises not just from the words "an element" but from the use of the word "involves".
The question is, does the conduct have to be dishonest or is it necessary only for a part of the conduct to be dishonest, even if the rest of the conduct in the particular circumstances of an offence is all right? That is a distinction which is almost impossible to draw. Further ambiguity is engendered by a misuse of the distinction between the test in criminal and civil law for the burden of proof. In criminal law, in order to prove a particular offence, it has to be shown beyond a reasonable doubt that someone acted with a dishonest intent. In civil law it is merely that on the balance of probabilities fraud or dishonesty is established. If that burden of proof is the problem and if the Government wish to say that the civil test applies and not the criminal test, which seems to follow from the nature of the offence that is being legislated, and they are attempting to distinguish between gradations of dishonesty within this clause, it confuses more than it elucidates.
The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) asked whether the Government were saying that an evasion of VAT, say, of £5,000 should be caught in its entirety by clause 13, even though there was only dishonest conduct in relation to a fraction of that amount. That would be highly unsatisfactory, because either

someone has behaved dishonestly in respect of an evasion of VAT or he has not. If there is any sum of money for which they are liable but they have not behaved dishonestly in relation to it, they should not be caught by clause 13. That is an unjustifiable distinction.
The Minister has very fairly thought about it and it would be wrong, given that we concentrated so much attention on the words "an element of dishonesty", to criticise him. If he wants to make it clear that a lesser burden of proof is being applied, then it could be done in a much less ambiguous way. The danger of leaving in the word "involves" is that it has the same connotation as an "element" because it may involve a certain amount of dishonesty, but one is not sure whether the entirety of the conduct needs to be dishonest. So the amendment does not really deal with the essential point made in Standing Committee. When introducing a new offence, it is right that people should know exactly where they stand. I ask the Minister to think again because there is a general view among lawyers, certainly outside the House, that there is a lack of clarity in clause 13 that could pose problems. It is much better that we deal with them as legislators rather than leave them to be dealt with by the courts.

Mr. Hayhoe: I am grateful for the manner in which the amendment has been moved and the way in which the hon. Member for Sedgefield (Mr. Blair), speaking for the Opposition, has responded to it. There are real difficulties here because, as I understand it, not being a lawyer, we are moving into somewhat new ground on which there is much precedent in legislation. We are decriminalising a large number of offences concerning VAT and the whole House has welcomed that. We are replacing those criminal offences by a civil offence and the arguments and problems of changing from the burden of proof—which, as I understand it, for a criminal offence is that it is beyond reasonable doubt — towards that for a civil offence, which is the balance of probabilities, has caused problems for the draftsman and certainly also caused problems for those of us who are looking at this more as laymen.
I responded to points made in Committee about an element of dishonesty, saying that could imply that there was a very considerable amount of conduct in which there was just a tiny element of dishonesty and it would be unfair to roll up the whole thing together. I believe that the words "involves dishonesty" imply that it is running through the whole of these transactions and that the level of proof would be the balance of probability level rather than the beyond a reasonable doubt level. One of the reasons why this formulation of words appealed to me was that it was recommended by the VAT practitioners group. I do not wholly accept the arguments that it was putting forward but it, too, was attempting to find a formulation of words which would reflect what was in Keith's mind. Alas, he did not give us the benefit of a formulation of words to give legislative effect to what he was recommending.

Mr. Blair: This is a problem between a layman's way of looking at things and a lawyer's way of looking at them. The notion of civil fraud is a common law offence and the burden of proof will necessarily apply when it is deemed as a civil offence and not a criminal offence. Can I suggest that if the word "involves" is present simply to make it clear that there is a civil burden of proof that is what is needed? It probably is not needed but, if the Minister


wants to make it clear beyond any doubt, it is best to state it expressly rather than leave it as it is at present. This might go not to the burden of proof but to the actual quality of dishonesty, in other words, not proving the dishonesty but the actual quality of the dishonest act. That distinction is probably the correct one to make.

Mr. Hayhoe: I am in the position in which people sometimes find themselves when they take legal advice and where that advice is not wholly unanimous and there are differences of graduation. I suspect that what is happening to me tonight is that I am receiving from distinguished Opposition lawyers advice which is not entirely in accord with that which I have taken. I can assure the House that, having given the undertaking in Committee, I have tried to discharge it to the best of my ability.
The change proposed in amendment No. 3 will reflect the Government's intention that there should be a demonstration of sufficient dishonesty to satisfy a tribunal on the balance of probabilities that the whole conduct merited a civil penalty and that the Customs and Excise should apply that standard. I hope that the courts will not find any ambiguity in the approach that I am commending to the House. It would be necessary to have another look at this legislation if the results worked out that way in practice, and it is only right that one should do so.
I advise the House not to adopt the form of words proposed by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) in his amendment No. 141. I hope that the House will agree to the change, which I suspect will be welcome even if it does not go as far as some would wish, set out in amendment No. 3.

Mr. J. Enoch Powell: It is obvious that the Minister will look again at this wording, but I hope that he will not wait until there is a case that obliges him or his successor to do so. I put a purely linguistic and not a legal point to him in that context. I suggest that the word "involves" was chosen in the original drafting because it fits with the words "an element". "Involves an element of was a whole phrase and, by removing the words "an element of in discharge of his undertaking to the Committee the Minister has not removed the essential difficulty to which all the argument was directed. I hope that he will take that into account when he looks at this.

Mr. Kirkwood: I accept what the Minister says. We are on difficult ground, and I hope that the hon. Gentleman can assure me that he will keep a careful and close watch and, if the courts get into a fankle about this, he will take quick and urgent action to remedy the distress that it will cause. I fear that there is a real prospect that there will be difficulties. However, if the Minister can give me that assurance, I shall be happy to withdraw my amendment.

Mr. Hayhoe: I am glad to give that assurance. This is difficult ground, and I am grateful to the right hon. Member for South Down (Mr. Powell) for his comments. I should like to consider with my advisers what has been said. I somehow suspect that this is not entirely the end of the matter, but I hope that at least the House will think that I have sought to be helpful and to move in the direction that the Committee wished.

Mr. Kirkwood: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made, No. 3, in page 9, line 33, leave out 'an element of.'

No. 4, in page 9, line 35, leave out '(5)' and insert '(7)'.—[Mr. Hayhoe.]

Mr. Kirkwood: I beg to move amendment No. 142, in page 10, line 20, leave out from 'amount' to 'and' in line 21 and insert 'as appears appropriate'.

Mr. Deputy Speaker: With this it will be convenient to consider amendment No. 143, in page 10, line 20, leave out 'not less than half' and insert 'less than'.
Amendment No. 144, in clause 14, page 12, line 28, leave out 'if' and insert
'in the circumstances outlined in (a) and (b) of this subsection but shall in other circumstances give rise to liability to such a penalty not exceeding the penalty under subsection (1) above as the Commissioners or on appeal by the person concerned a value-added tax tribunal having regard to all the circumstances of the case think fit'.
Amendment No. 145, in clause 15, page 14, line 11, at end insert
'but shall if he does not so satisfy either of them give rise to such penalty not exceeding the amount of the penalty specified in subsection (1) above as the Commissioners or on appeal by the person concerned a value-added tax tribunal having regard to all the circumstances of the case think fit'.
Amendment No. 146, in clause 16, page 15, line 19, at end insert
'but shall if he does not so satisfy either of them be liable to such penalty not exceeding the amount of the penalty specified under subsection (3) above as the Commissioners or on appeal by the person concerned a value-added tax tribunal having regard to all the circumstances of the case think fit'.
Amendment No. 147, in clause 17, page 17, line 27, at end insert
'but shall if he does not so satisfy either of them give rise to such penalty not exceeding the amount of the penalty specified under subsection (1) or (2) above as the Commissioners or on appeal by the person concerned a value-added tax tribunal having regard to all the circumstances of the case think fit'.

Mr. Kirkwood: Clause 15, which deals with VAT criminal penalties, was rehearsed at some length in Committee. The burden of the representations that we received both before the Committee stage and since convinced me, as it did the Association of Certified Accountants, the Law Society, the Institute of Directors and many others, that it was a mistake to take away the power of mitigation that the Bill proposes.
Clause 13 reduces, although it does not take away, the discretion to mitigate the penalty. Therefore, we should have more confidence in the tribunals. I should be happy to leave them to make judgments about individual cases in a better way than we can, as legislators, dealing with a matter in principle. On that basis, the words "as appear appropriate" would allow for much more flexibility. I would be happier if we adopted that approach rather than the approach of the Bill as it stands.

Sir William Clark: Mr. Speaker has selected amendments Nos. 143 to 147 in this group. They are similar to the amendment tabled by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). The one fear outside the House is that it looked as if the VAT tribunal powers would be treated differently from those of the special and general commissioners of the Inland Revenue. I know that the Government have gone some way to mitigating the penalties that at one time were fixed. However, I should have thought that there is a case for


saying that, now that there is the right of appeal to a tribunal, a tribunal could, in its wisdom and judgment, have the power to mitigate the penalty from zero to the maximum. This is what my hon. Friend the Member for Tatton (Mr. Hamilton) and I are trying to deal with in the amendments.
I hope that my hon. Friend the Minister will look at this. If he is not prepared to accept any of the amendments in this group, will he give an undertaking that he will look at the matter by the next Budget, with the experience that we have had from now until then? If it is found that mitigation from zero to maximum should be allowed and that there should be some change in the appeal procedure, I trust that he will make these changes.

Mr. Neil Hamilton: When we debated these matters in Committee I made it clear that I thought that the Government were mistaken in withdrawing clause 23, which gave the power to the commissioners to mitigate penalties and interest. I thought that the Government took the wrong line. Rather than taking away the right to mitigate altogether, they should have accepted Conservative amendments to extend that power to the tribunals.
At the moment, we have an all-or-nothing solution. One is either subject to no penalty or the maximum penalties. This has never been the case for income tax and many people are clearly worried, as my hon. Friend the Member for Croydon, South (Sir W. Clark) has said, that next year, when the Keith committee's proposals on the enforcement powers of the Inland Revenue are put into legislative form, the power of mitigation will be taken away from it as well. That would be wholly unacceptable and would meet with the united opposition of all the business representative organisations. It would be unacceptable to the taxpayer as well, whether an individual or in the corporate or business sector.
I warn my right hon. and hon. Friends in the Treasury that if the Government are thinking of extending this line of thinking into the Inland Revenue sector they will be in for a great deal of opposition. Many people will feel a great sense of injustice that they will not be able to place themselves in between the two extremes of no penalty or maximum penalty as a result of the Bill. VAT is not a popular tax, particularly with small trades, because it imposes an enormous administrative burden. Whether justified or not, there is a widespread feeling that the Customs and Excise, because of its long history of involvement in smuggling and offences of that kind, has far too heavy a hand in dealing with those who have to administer the tax. Here is another imposition on them.
I regret that the Government have not seen fit to take the middle way of giving power to the commissioners and the tribunal to mitigate penalties. This will make the tax much more unpopular and the Government will forfeit a great deal of good will that needs to be fostered. I hope my right hon. Friend will heed the words that have been spoken not only by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) but by many Conservative Members both upstairs in Committee and on the Floor of the House. I hope the Government will think again about this matter.

9 pm

Mr. Blair: In the Standing Committee, the Opposition tabled a new clause specifically giving such a power of

mitigation. It was a pity, when Conservative Members feel so strongly about it now, that they did not support us. That clause introduced a specific power of mitigation and would have tidied up the detritus of clause 23.

Mr. Neil Hamilton: Rubbish.

Mr. Blair: The hon. Gentleman says rubbish, but a specific clause was introduced providing a power of partial mitigation and he did not support it.
The amendment by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) deals specifically with clause 13(4). Subsection (4) is not, strictly speaking, a mitigation clause. It allows the commissioners or, on appeal, a VAT tribunal, to reduce the penalty by up to 50 per cent. as a reward for co-operation. It applies only in circumstances of co-operation and is a direct incentive to people to co-operate. The arguments that apply in relation to that special incentive do not necessarily apply to the general case for mitigation. I have read the proceedings of the Standing Committee because I was not present for that part of the discussion. The penalty should not be reduced to nothing in circumstances where someone has merely co-operated with the commissioners. If what was being given was a real power of mitigation under which any circumstance could be taken into account, there would be more reason for allowing that general power.
Amendments were moved in the names of the hon. Member for Croydon, South (Sir W. Clark) and the hon. Member for Tatton (Mr. Hamilton). We had a very full debate upstairs in Committee as to whether or not there should be a power of mitigation. I made clear at that time that there should be a power of mitigation because there are graduations of offences. When legislation of a fairly tough nature is being introduced, it is wrong for no leeway to mitigate to be given to the commissioners or the VAT tribunal, not just when someone is co-operating, but in cases of great hardship. Without repeating them fully, I reiterate the arguments made In the Committee. I hope the Minister will look at the matter after some months of experience of these provisions so that we can see whether or not the injustice some of us fear has come about.

Mr. Hayhoe: The matters being debated in this series of amendments were given a good airing in our proceedings upstairs in Committee. As has just been said, we have had a re-run of the arguments during the short debate on new clause 32. I could re-state the arguments I then deployed, but that would not be helpful. I suspect that most hon. Members in the Chamber heard me say them in the first instance and might not be pleased if I were to repeat them at length.
To make the changes proposed would strike at the heart of the Keith philosophy. My hon. Friend the Member for Tatton (Mr. Hamilton) was less than fair in his comments, though I accept that, right from the start on one of his earliest interventions in the Committee, he was arguing in favour of a power to lie both with the commissioners and the VAT tribunal to vary the amounts of penalties imposed. The philosophy of Keith was the certainty of fixed penalties. The Government have introduced—and this was not recommended by Keith—the whole concept of a reasonable excuse. I note the comment made in Committee, that to say the taxpayer had to exercise due diligence and have a reasonable excuse might be too stringent a test. Therefore, I propose that "due diligence" should be dropped.
Having a resonable excuse is a very marked change in favour of the taxpayer compared with the Keith recommendations on which, as the House knows, there were wide consultations in the many months following publication of his report. Equally, there is a reserve power, which I have explained, still resting with the commissioners to exercise if there are grounds of compassion or something similar that would not be covered by "reasonable excuse". The commissioners will have that power to remit on an intermittent basis penalties that might be imposed.
The change that has been made of introducing the reasonable excuse defence to be argued both to the commissioners—who I hope in the main will deal with the matter so that it does not need to go any further—and if necessary to the tribunal, the raising of the trigger points quite significantly compared with those recommended by Keith, the residual mitigation powers which Customs and Excise has and which have been endorsed by the Public Accounts Committee quite recently, and the way in which they are exercised, all add up to a significant change in favour of the rights of the taxpayer and safeguard him against the original proposals made by Keith. In those circumstances, I commend the provisions to the House, and I hope that the House will not seek to introduce the amendment.
I was asked to keep the matter under review. Of course, we shall do so. However, the next Budget is too soon for us to have had much experience. The default surcharge in clause 19 does not come into effect until October 1986. The serious misdeclaration provision in clause 14 does not come into effect until 1988. We shall need a little longer to get some feel and experience of this change, but I gladly undertake that matters will be kept under review. It is important to remember that, even if a Minister did not give such an undertaking, individual Members of the House would keep the matter under review and find ways of raising it if they saw elements of injustice occurring.
I hope that the amendment will not be pressed to a Division. Let us see how we get on with the new regime being introduced in these clauses.

Mr. Kirkwood: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14

SERIOUS MISDECLARATION OR NEGLECT RESULTING IN UNDERSTATEMENTS OR OVERCLAIMS

Mr. Freeman: I beg to move amendment No. 161, in page 11, line 36, leave out
'£3,000 and 1½ per cent.'
and insert
'£10,000 and 5 per cent.'.
I sense that there is broad support on both sides of the House for the amendment, and I am grateful to the Minister for the courteous and encouraging way in which he has considered our discussions about its terms. The purpose of the amendment is to raise the minimum error threshold before the penalties of clause 14 apply.
It may help the House if I explain briefly what the clause provides at present and what the amendment would substitute for it, because the language in subsection (2)(a)(i) and (ii) is difficult to follow.
As the Bill stands, if the true amount of tax due in a quarter is between nil and £10,000, the error threshold is 30 per cent., that is from nil to £3,000. If the error is greater than that, the automatic penalties provided in clause 14 will come into play, that is the 30 per cent. penalty and the recovery of the tax. If the true amount of tax due is between £10,000 and £200,000, the error threshold is £3,000, and if it is above £200,000 the 1·5 per cent. provision comes into play. Therefore, the error threshold starts at £3,000 and rises to 1·5 per cent. of the true amount of tax due.
Under the amendment, if the true amount of tax due is between nil and £33,333, the error threshold is 30 per cent. of the true amount of tax due. If the tax due is between £33,333 and £200,000, the error threshold is at £10,000, and if the tax due is above £200,000 the 5 per cent. provision comes into effect.
The practical effects of that are that the error thresholds are increased for all companies where the true amount of tax due in any quarter is greater than £10,000. That is equivalent to £40,000 per annum. The amendment would benefit companies where the true amount of tax due is greater than that. The benefit is not confined purely to medium-sized and large companies, but to what many involved in business and industry would regard as small companies. The Confederation of British Industry, the Institute of Taxation and many companies throughout the country will welcome the amendment, and I commend it to the House.

Mr. Hayhoe: I am happy to say that the Government accept the amendment, and I join my hon. Friend the Member for Kettering (Mr. Freeman) in commending it to the House.

Amendment agreed to.

Mr. Hayhoe: I beg to move amendment No. 5, in page 11, line 42, after 'periods', insert
beginning after the day appointed under subsection (8) below'.
The purpose of the amendment is to safeguard taxpayers by ensuring that there can be no possibility of retrospection, either directly or through the operation of the totting up test in respect of the civil penalties and serious misdeclaration under clause 14, breaches of regulatory provisions under clause 17, and of interest on tax under clause 18. The amendment implements assurances which I gave to the Committee, and I commend it to the House.

Mr. Blair: As I understand it, the amendment will prevent retrospective totting up, and that is its sole effect.

Mr. Hayhoe: That is my understanding. The amendment is in pursuance of my undertaking to the Committee when my hon. Friend the Member for Tatton (Mr. Hamilton) raised some points.

Amendment agreed to.

Mr. Hayhoe: I beg to move amendment No. 137, in page 12, line 20, at end insert
'but if for any period there is an understatement of credit for input tax or an overstatement of output tax, allowance shall be made for that error in determining the tax for that period which would have been so lost.'.


My hon. Friend the Member for Bristol, North-West (Mr. Stern) is unable to he present this evening. As I was going to accept the amendment, I gladly move it and accept it in the same breath.

Mr. Blair: I wish to ensure that I understand the effect of the amendment. Will the Minister confirm that if a trader has understated both the input and output tax—in other words, he is understating the volume of the business — and if he is brought up for one understatement, he will be given credit for the other?

Mr. Hayhoe: It is the net position that will be dealt with. It seemed reasonable and fair.

Amendment agreed to.

Amendments made: No. 6, in page 12, line 28, after 'section', insert
'nor be taken into account under subsection (2)(b) above'.
No. 7, in page 12, line 29, leave out from 'person' to end of line and insert `concerned'.—[Mr. Hayhoe.]

Mr. Hayhoe: I beg to move amendment No. 8, in page 12, line 31, leave out
'that he exercised all due diligence and'.

Mr. Speaker: With this it will be convenient to take the following amendments:
Government amendments Nos. 10, 11, 14, 17 and 27.
Amendment No. 175, in clause 33, page 34, line 45 at end insert
'save where the insufficiency of funds arises directly from the fact that the person has not received the payment from his customer in respect of which value-added tax is due and has not been paid.'
and Government amendment No. 28.

Mr. Hayhoe: The amendments give effect to the undertakings that I gave in Committee to reflect upon the need for the provision concerning "all due diligence". Upon reflection, and taking account of the arguments put from both sides of the Committee, I am now bringing forward these amendments, which I hope will be welcomed and supported by the whole House.

Mr. Blair: I have no difficulty with the Government amendments, but amendment No. 175 takes us in a slightly different but important direction.
At present, under clause 33, if a trader attempted to provide a reasonable excuse for any conduct that was unlawful under the VAT provisions, the effect of subsection (2) of that clause would be to prevent an insufficiency of funds to pay any tax due being deemed by the commissioners or the VAT tribunal to be a reasonable excuse; in other words, the definition of "reasonable excuse" is drawn in such a way as to exclude the situation in which someone cannot pay because of an insufficiency of funds.
Amendment No. 175 would add, at the end of subsection (2), the words
save where the insufficiency of funds arises directly from the fact that the person has not received the payment from his customer in respect of which value-added tax is due and has not been paid".
It is important to note that the amendment does not relieve the trader or person concerned of the obligation to pay the VAT. Yesterday, on one of the new clauses, the discussion related to whether, in circumstances where a customer had not paid the VAT to the trader or taxpayer, the taxpayer could then count that as a bad debt. The

Government resisted that amendment. I could see why they did so, because it would have relieved the trader altogether of the obligation to pay.
Our amendment does not relieve the person concerned of the obligation to pay; it simply relieves that person, if the commissioners or the VAT tribunal so desire, of the harsh system of automatic penalties and the different rates of interest in circumstances where that non-payment of VAT has genuinely been caused through no fault of the trader. In other words, it gives a power to the Customs and Excise or the VAT tribunal to take into account insufficiency of funds in carefully prescribed circumstances when deciding whether there is a reasonable excuse for non-compliance.
That does not mean that the commissioners or the VAT tribunal would have to take into account insufficiency of funds arising in those circumstances — they would not have to describe that as a reasonable excuse — but it does not exclude from the definition of reasonable excuse the circumstances in which an inability to pay arises directly from the customer not paying the trader and the trader having sought from him VAT in respect of that invoice.
The prescribed circumstances are very tight. The insufficiency of funds must arise directly from nonpayment by the customer. We are therefore discussing a fairly limited range of situations and a case in which a trader may issue an invoice for a large amount. By so doing, he is liable for VAT upon it. If the customer refuses or fails to pay, the VAT trader may be in difficulties in meeting the VAT liability because the customer has not honoured the invoice. The insufficiency of funds arises directly from the conjunction of an invoice being issued, a liability to pay, and the customer not meeting that liability.
With great respect, I suggest that such a narrowly drawn discretion as contained in the amendment is in the interests of equity. We know that there are small businesses which can have major cash flow problems as a result of VAT liabilities. We know that, particularly in certain trades, it can be difficult to secure payment of invoices from customers. It seems unfair that those cash problems can result in the serious VAT penalties under these clauses in circumstances in which, through no fault of the trader, the customer refuses to pay the trader.
I repeat that this does not relieve a trader of the obligation to pay VAT; it simply relieves, or gives the commissioners of the VAT tribunal discretion to relieve, the harsh penalties prescribed by these provisions of the Bill in circumstances where the problems arise directly from the failure of a customer to pay.
The Government boast of their record on small businesses. Of all the VAT subjects which we will discuss tonight, I think that none is closer to the heart of small businesses than the difficulties which can arise in the circumstances I have described.
I ask the Minister to consider carefully whether he can accept the amendment. It would allow for fairness in the treatment of businesses and traders, but it would not relieve people of the basic obligation to pay. It is a way of easing the burden of these penalties in circumstances in which, through no fault of the trader, a great financial difficulty can occur.
I appeal to the Minister, in terms of a fairly tightly drawn clause, to consider whether he can allow the amendment, which I believe would greatly increase the justice of these provisions.

Mr. Tim Smith: This group of Government amendments will be widely welcomed, I think, because the Bill as drafted would have required the taxpayer to meet a double test to establish a defence: first, a reasonable excuse and, secondly, due diligence. I think that that would have caused confusion. Therefore, I am grateful to my right hon. Friend the Minister for having introduced what I think will be a valuable simplification.
My hon. Friend may recall that I sent him a redraft of some of these clauses prepared by Mr. St. John Price, a VAT practitioner. Mr. St. John Price felt, as I think many people do, that some provisions of the Bill are still extremely complicated and difficult to follow. Can my hon. Friend tell me what has happened to those proposals?

Mr. Hayhoe: To reply first to my hon. Friend, I have a letter in draft in response to my hon. Friend. Perhaps I should not seek to do more than give him a soupcon of an hors d'oeuvre by saying that it is not as simple as his constituent has led him to believe or, indeed, as I said in Committee, as simple as I dearly wish it could have been. I will be writing to him. With his permission, if other hon. Members wish to have copies of that correspondence, I would be happy to co-operate. I am delighted that the Government amendments removing the due diligence provision have been generally welcomed.
The hon. Member for Sedgefield (Mr. Blair) made various points about amendment No. 175. Clause 33(2) provides that
an insufficiency of funds to pay any tax due is not a reasonable excuse.
It limits the circumstances in which the benefit of this defence may be claimed. The purpose of the amendment is to remove this limitation where the taxpayer can show that an insufficiency of funds results directly from nonpayment by his customer and thus to permit more taxpayers to avoid the penalties, in particular the default surcharge.
The hon. Gentleman made out a persuasive case on the basis of the hard cases that he used as a foundation, of which all right hon. and hon. Members are aware, because of our contact with constituents. However, like the hoped-for simplicity of the drafting of these clauses, it is not quite so easy. The Opposition amendment would begin to undermine the basic concept of VAT: that tax becomes due at the time of supply or in the issue of the tax invoice, subject to its being issued reasonably promptly. These matters were referred to yesterday in our debate on new clause 11.
The amendment effectively changes the tax point to the date of payment for the supply, since it would allow nonpayment by customers to be the basis of a perpetual claim to the reasonable excuse defence against all sanctions for non-payment of the VAT in question. Under the guise of helping the hard cases, for which there is great sympathy, it could drive a coach and horses through the surcharge arrangements and would open the floodgates to representations about and appeals against surcharge of varying degrees of sincerity. To expect Customs and Excise or, on appeal, the VAT tribunal to distinguish the

small minority of cases of genuine difficulty without letting in larger numbers of less deserving cases, thus eroding the revenue benefits of the surcharge, would be almost impossible.
We have already established the unfairness to the complying trader of allowing the non-complying trader effectively to have an interest-free loan from the taxpayer by withholding and hanging on to the tax. It is not just the revenue which would be at a disadvantage. His local and honest neighbour who is trading properly and paying his taxes would be equally at a disadvantage.
Although I accept the honourable intentions behind the amendment, it would be a move towards providing a total VAT bad debt relief by the back door. These matters were considered in the Committee debate to which my right hon. and learned Friend the Chief Secretary to the Treasury replied. We have made a significant move on bad debt relief by linking it to the provisions of the Insolvency Bill, but we have not gone as far as many hon. Members wish in providing the complete VAT bad debt relief that this amendment would provide.
Furthermore, it would be a vehicle for abuse. It would make it possible for one taxpayer to supply an associate, perhaps even companies in common ownership, who does not pay for the supplies but claims the input tax. The input tax can be reclaimed on the basis of the invoice by companies who do not need to have made the payment. That is the other side of the coin to which I referred in our debates on clause 11 yesterday. The possibility of fraud and abuse would be opened up if it were possible for the input tax to be claimed back. Inter-associate debts could be run up with impunity, no output VAT would be accounted for under the Opposition's dispensation, but the input tax would be paid by the Customs and Excise, to the detriment of the Revenue.
I accept that the intention of the hon. Member for Sedgefield is to meet the hard cases that we all know about, but I hope that I have persuaded him that his amendment would go a long way beyond that. We may return to the general matters at a later date but not, I suspect, tonight.

Mr. Blair: By leave of the House, I express my gratitude to the Minister of State, who made a good and persuasive case, though I wonder whether the results of our amendment would be as bad as he makes out.
The debate has shown the need for flexibility in the system. That need runs through the mitigation arguments and this debate.

Amendment agreed to.

Amendment made: No. 9, in page 12, line 35, leave out from 'person' to 'furnished' in line 36 and insert `concerned'.—[Mr. Hayhoe.]

Clause 15

FAILURES TO NOTIFY AND UNAUTHORISED ISSUE OF INVOICES

Amendment made: No. 10, in page 14, line 10, leave out
'that he exercised all due diligence and'.—[Mr. Hayhoe.]

Clause 16

BREACHES OF WALKING POSSESSION AGREEMENTS

Amendment made: No. 11, in page 15, line 18, leave out
'that he exercised due diligence and'.—[Mr. Hayhoe.]

Clause 17

BREACHES OF REGULATORY PROVISIONS

Amendments made: No. 12, in page 15, line 30, after '(10)', insert `and section 21(6)'.

No. 13, in page 16, line 12, at end insert—
(aa) a previous failure to comply with any such requirement shall be disregarded if it occurred before the passing of this Act.'.

No. 14, in page 17, line 23, leave out
'that he exercised all due diligence and'.—[Mr. Hayhoe.]

Clause 18

INTEREST ON TAX ETC. RECOVERED OR RECOVERABLE BY ASSESSMENT

Amendment made: No. 15, in page 20, line 11, at end add
'and any reference in this section to a prescribed accounting period is a reference to a period which begins on or after the day so appointed'.—[Mr. Hayhoe.]

Clause 19

THE DEFAULT SURCHARGE

Amendments made: No. 16, in page 20, line 37, leave out from 'If' to 'an' in line 39 and insert
'a surcharge liability notice is served by reason of default in respect of two prescribed accounting periods and the second of those periods ends at or before the expiry of'.

No. 17, in page 21, line 34, leave out from beginning to end of line 41 and insert—

'(a) the return or, as the case may be, the tax shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limits, or
(b) there is a reasonable excuse for the return or tax not having been so despatched'.

No. 18. in page 21, line 42, leave out from 'and' to end of line 43 and insert
'for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served)'.— [Mr. Hayhoe.]

Clause 20

REPAYMENT SUPPLEMENT IN RESPECT OF CERTAIN DELAYED PAYMENTS

Mr. Neil Hamilton: I beg to move amendment No. 150, in page 22 leave out lines 35 and 36 and insert—
'(c) repayment is not made.'.
Clause 20 provides that where a delay is involved in the repayment of VAT to a registered trader, a repayment supplement shall be paid in addition to the sum owed. There is a de minimis provision to cut out entitlement to the supplement where there is only a short delay. The

period chosen is 30 days. When the 30-day period has elapsed, the registered trader becomes entitled to his supplement.
There is a deficiency in the clause that would be remedied by my amendment. The clause provides that the commissioners should not repay VAT and pay the supplement, but should merely issue a written instruction for the repayment. That will normally be sufficient, but there have been strikes involving Customs and Excise employees and if they are repeated in future an order for repayment may be made, but no cheque might he issued to the taxpayer.
If that happened, the taxpayer would suffer the loss of the interest that he would otherwise have been able to gain on the money repaid to him. It would be unfair if that extra cost were imposed on taxpayers and I hope that my right hon. and learned Friend the Chief Secretary will accept the amendment or at least think about the matter and return to it next year.

The Chief Secretary to the Treasury (Mr. Peter Rees): My hon. Friend the Member for Tatton (Mr. Hamilton) moved his amendment with characteristic lucidity and brevity. He discussed the matter in Committee so I am aware of and understand his concern. We have thought long and hard about his arguments in Committee, but on reflection we are still not able to meet the point for practical reasons.
The Customs and Excise deal with about 50,000 claims a week, most of which are dealt with within seven days. My hon. Friend will be among the first to admit that the system works smoothly and that delays do not usually occur. My hon. Friend mentioned postal strikes and the computer strike six years ago.
The system is clear cut. The Customs and Excise is able to say with precision when the period has expired because that is when the instruction is given. My hon. Friend will appreciate that sometimes it will not be able to check. During a postal delay it will have to depend upon the records of the recipient or the registered trader. It will be in his hands.
My hon. Friend might argue that if there is inconvenience it should be borne by the Administration rather than by the taxpayer. However, I hope that he and the House will bear in mind that the repayment supplement is generous. We are talking about a 5 per cent. supplement. It is not even calculated on a per annum basis. It is difficult to estimate the cost of my hon. Friend's amendment, but it might cost as much as £1 million a year.
I recognise my hon. Friend's anxiety, but I hope that he and the House will be impressed by the practical limitations.
We are moving into new territory. The Keith committee did not recommend an amendment such as that proposed by my hon. Friend, but we shall keep the matter under review. If hardship is caused, we shall examine the matter again.
My hon. Friend has done the House a service by underlining the problem. I hope that he will feel that justice has been done and will leave the matter where it is.

Mr. Neil Hamilton: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 19, in page 22, line 44, leave out `£10' and insert `£100'.—[Mr. Peter Rees.]

Clause 21

ASSESSMENT OF AMOUNTS DUE BY WAY OF PENALTY, INTEREST OR SURCHARGE

Amendment made: No. 20, in page 24, line 18, leave out from 'be' to end of line 19 and insert
`for which entitlement to a payment under section 14(5) of the principal Act was overstated'.—[Mr. Hayhoe.]

Clause 22

ASSESSMENTS: TIME LIMITS AND SUPPLEMENTARY ASSESSMENTS

Mr. Hayhoe: I beg to move amendment No. 21, in page 26, line 9, leave out from `if' to end of line 10 and insert 'tax has'.

Mr. Speaker: With this we may discuss Government amendment No. 22.

Mr. Hayhoe: The amendment honours assurances that I gave in Committee during discussions on amendment No. 118 to my hon. Friend the Member for Tatton (Mr. Hamilton).

Amendment agreed to.

Amendment made: No. 22, in page 26, line 24, leave out paragraph (b) and insert—
'(b) if the circumstances are as set out in subsection (4) above, the modification of subsection (1) above contained in that subsection shall not apply but any assessment which (from the point of view of time limits) could have been made immediately after the death may be made at any time within three years after it.'.—[Mr. Hayhoe.]

Clause 24

AMENDMENTS OF SECTION 40 OF THE PRINCIPAL ACT

Amendment made: No. 23, in page 27, line 22, leave out
'(disregarding any mitigation by the Commissioners)'.—[Mr. Hayhoe.]

Clause 29

ENFORCEMENT OF CERTAIN DECISIONS OF TRIBUNAL

Mr. Hayhoe: I beg to move amendment No. 153, in page 31, line 29, at end insert
`(5) Any reference in this section to a decision of a value added tax tribunal includes a reference to an order (however described) made by a tribunal for giving effect to a decision.'.
This is a technical amendment concerning the administration of the VAT tribunals and the way in which they promulgate brief orders of their decisions which I understand will be to the benefit of all concerned. I hope that the House will support it.

Amendment agreed to.

Clause 31

INSOLVENCY

Amendment made: No. 24, in page 32,line 8, leave out made' and insert 'in force.'—[Mr. Hayhoe.]

Clause 32

REFUND OF TAX IN CASES OF BAD DEBTS

Mr. J. Enoch Powell: I beg to move amendment No. 25, in page 33, line 17, leave out 'in Great Britain'.
Clause 32 deals with relief for VAT in case of bad debts, and subsection (3) defines insolvency for the purposes of that VAT relief. There are two alternative headings of the definition in paragraphs (a) and (b). An attentive reader — or, in the case of Northern Ireland, even an unattentive reader—would notice that, whereas definition (a) of liquidation relates to the United Kingdom and the Isle of Man, definition (b) relates only to Great Britain. That throws up the question whether the relief from VAT in case of a bad debt that is provided by subsection (3)(b) is not to be available in the case of a company in Northern Ireland and a claim for the repayment of VAT arising out of transactions with that company.
My hon. Friends and I would have been doing less than our duty had we not drawn attention to an apparent inequity. Indeed, a number of constituents have written to us expressing their anxiety that this relief is apparently to be denied in the Province.
Seeing it to be so blatant, however, and following the general proposition that there is usually some explanation for everything, I communicated with the Financial Secretary to the Treasury and relied upon the rules of the ex-FST club, only to receive, to my delight, a lengthy and helpful reply from the Minister of State. If I understand it correctly, the position roughly is that the circumstances defined in paragraph (b) — which is confined to Great Britain — arise under the provisions of the Insolvency Bill, which has not yet received Royal Assent. Well and good so far! However, the relevant provisions of the Insolvency Bill do not apply to Northern Ireland. Consequently, until an Order in Council is made which applies those provisions to Northern Ireland, there is nothing upon which the relief provided by this paragraph can bite for a company in Northern Ireland.
However, I am not entirely content to leave it with the right hon. Gentleman's concluding assurance:
In the meanwhile … VAT bad debt relief is still available in Northern Ireland where a company enters into a compulsory or creditors' voluntary liquidation.
It is quite clear that there are circumstances in which relief will be provided in other parts of the United Kingdom which will not be available in Northern Ireland until the corresponding Northern Ireland legislation is made.
I have two complaints on that score. The first is one with which the House in its midnight hours has become very familiar — the complaint of my hon. Friends and myself that for no sufficient reason the law is made in the Province not by Act of Parliament but by Order in Council. That is a delightful example of the difficulties and injustices that we get into when we legislate by different methods for different parts of the United Kingdom.
Those difficulties and injustices would not be so great if the different methods of legislation were simultaneously applied in both parts of the kingdom. But in this case it is quite clear that there is to be a time lapse before the legislation comes into effect. I understand that it will come into effect in Great Britain early next year, but we do not yet have a date on which the legislation, for which proposals for a draft Order in Council have not yet been


made, will come into effect in Northern Ireland. There is, therefore, a gap of injustice between those concerned in Northern Ireland and those relieved in the rest of the United Kingdom.
9.45 pm
The Treasury is the last Department of State that I would hold guilty of the current absurdity of legislation in Northern Ireland by Order in Council. To find the culprits in that respect, one must look to other Departments of State. But I have a friendly and helpful hint to offer to the Treasury. It is that, in its endless pursuit of savings of public expenditure, it would find a rich field if it proceeded to eliminate the duplication of effort, staff and work — not only in this House but elsewhere in the public service—caused by the two concurrent forms of legislation for Great Britain and Northern Ireland.
That is a good tip for the Minister of State, for which I hope he and his Department will be duly grateful — although, when I offered it to an earlier Minister at the Treasury, at a less advanced stage of political affairs in Northern Ireland, though gratefully received, it was by no means acted upon.
There is something, however, that the Minister of State could do which would be of practical help in existing circumstances, and I am sorry that the proposition I have to make is not one that I had time to put him in advance of the debate. I shall therefore understand if he responds to my suggestion simply by undertaking to examine it. That is the most in the circumstances that I could expect.
It is admitted that there will be a gap of time between the availability of this relief in Northern Ireland and its availability in the rest of the United Kingdom. My suggestion is that the Government could undertake that, by concession, the same relief will be afforded in Northern Ireland during that interval as will be available in Great Britain and will, in due course, be available statutorily in Northern Ireland.
I hope that I am not asking something which is too libidinous from the Customs and Excise by suggesting that there should be an extra-statutory concession in this respect. After all, we have the Government's assurance that legislation in these precise terms is intended. It seems only reasonable, that being so and there being an inequitable gap between the application in two parts of the kingdom, that the inequity should be removed by extra-statutory action. I hope that the Minister will undertake to consider benevolently the suggestion that I have made.

Mr. James Molyneaux: As my right hon. Friend the Member for South Down (Mr. Powell) rightly said, this is a clear and even dramatic example of the disadvantage suffered by Northern Ireland under the system which is more accurately called colonial rule than direct rule.
I shall give an example because it is important that the Treasury should understand the whole iniquity of that which we suffer. That is the example of the measure that was processed through the House to remedy the defects in Orlit houses. On the day it was announced, I sought an assurance from the Minister for Housing and Construction that Northern Ireland would receive the benefits simultaneously with the rest of the United Kingdom. The Minister expressed the hope that there would be — he was in favour of—simultaneous application, but, lo and behold, when the rats got at it, we were told that that was not possible and that we should need lengthy discussions

on the same topic dealing with the same problem. It was nearly two years before the Order in Council dealing with the same problem came before the House.
Only last week Her Majesty's Government and Her Majesty's Opposition showed clearly that they were at least willing to consider the possibility of radical change to that unacceptable system. My right hon. Friend the Member for South Down has properly shown that, when the Insolvency Bill receives Royal Assent, Northern Ireland will not automatically benefit. We shall have the same charade once again. We shall be told that the sacred Stormont statute book must be thumbed over until the powers that be satisfy themselves that no dot or comma has been accidentally omitted. After a period of nonsensical consultations—they are nonsensical, considering that all citizens of the United Kingdom have an opportunity to comment on legislation before the House—and possibly 18 months to two years after the Insolvency Bill receives Royal Assent, we shall be privileged to debate in the middle of the night a parallel, ditto measure in the form of a Northern Ireland Order in Council to deal with the same problem.
Therefore, I reinforce the plea made by my right hon. Friend that Treasury Ministers give thought to providing some flexibility and relief in what will be a temporary period of 18 months to two years. People in Northern Ireland will find it difficult to understand why the law will not confer benefits upon them and why the Finance Bill will be applied in a different form in two separate parts of the same United Kingdom.

Mr. Hayhoe: The right hon. Members for South Down (Mr. Powell) and for Lagan Valley (Mr. Molyneaux) have correctly identified the problem as the provisions of the Insolvency Bill rather than those of the Finance Bill. I can only confirm that that is so and that the reason for the Finance Bill being drafted as it is is the present provisions of the Insolvency Bill, which is going through the House.
I reinforce what I said in the letter to the right hon. Member for South Down. As soon as legislation is brought in to extend the Insolvency Bill's provisions to Northern Ireland, the Government will extend those bad debt relief provisions concurrently. The Insolvency Bill provisions will be extended to Northern Ireland by statutory instrument. I note what has been said about the criticisms of those procedures. I can give the undertaking that, once that extension is made and once the Insolvency Bill point has been dealt with, Customs and Excise will extend the relief by concession until an amendment can be made in the next Finance Bill. There is no administrative problem in giving VAT relief to creditors in Northern Ireland as soon as practicable.

Mr. J. Enoch Powell: Perhaps the right hon. Gentleman has not fully appreciated the nature of the concession for which I was asking. I appreciate that before the Finance Bill is amended the relief will be granted as soon as the Northern Ireland law is brought into congruence with the Insolvency Bill, as it still is. What I was asking for was something more—that, in the period between the coming into force of this legislation and the coming into force of the Northern Ireland Order in Council, there should be an extra-statutory concession to fill that gap.

Mr. Hayhoe: If the right hon. Gentleman had contained himself for a moment, he would have found that


I was just about to address myself to the very courteous request that he put to me. I was going to preface my comments by saying that the information available to me is that only 12 receiverships occurred in the Province of Northern Ireland during 1984, out of 1,600 in the whole of the United Kingdom. The number of receiverships is therefore small. Four of the 12 went into liquidation. Because of this, there was an almost immediate entitlement to relief. The area in which the temporary concession is being requested is very small.
I gather that there is some problem with the issue of certificates. This means that I must take up the suggestion of the right hon. Member for South Down that I should undertake to examine his request sympathetically. I gladly undertake to do that.

Mr. J. Enoch Powell: I am grateful to the hon. Gentleman for his response. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 26, in page 33, line 31, at end insert
'or to a person deriving title from, through or under that person'.—[Mr. Hayhoe.]

Clause 33

INTERPRETATION AND CONSTRUCTION OF CHAPTER II

Amendments made: No. 27, in page 34, line 44, after 'conduct', insert '(a)'.

No. 28, in page 34, line 45, at end insert
'and
(b) where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.'

No. 29, in page 35, line 4, at end insert—
'(3A) In any case where—

(a) an amount is due from the Commissioners to any person under section 14(5) of the principal Act, and
(b) that person is liable to pay a sum assessed by way of penalty, interest or surcharge,

the amount referred to in paragraph (a) above shall be set against the sum referred to in paragraph (b) above and, accordingly, to the extent of the set-off, the obligations of the Commissioners and the person concerned shall be discharged.'.—[Mr. Hayhoe.]

Clause 39

BUILDING SOCIETIES

Amendment made: No. 30, in page 39, line 2, leave out
'relating to interest paid or credited'.—[Mr. Ian Stewart.]

Schedule 10

DEEP DISCOUNT SECURITIES

10 pm

Mr. Ian Stewart: I beg to move amendment No. 59, in page 124, line 38, leave out subparagraph (3).

Mr. Speaker: With this it will be convenient to take Government amendments Nos. 60 to 66.

Mr. Stewart: This measure fills a gap in the schedule which could have allowed the aim of the coupon-stripping legislation to be subverted by the conversion of securities issued as part of a coupon-stripping operation.
When we discussed the schedule in Standing Committee I assured the hon. Member for Thurrock (Dr. McDonald) that we would consider possible ways around the legislation. We have concluded that the existing provisions on conversion of securities are not entirely satisfactory. This group of amendments is designed to close a potential loophole.

Dr. Oonagh McDonald: I am glad that, because of our questioning in Committee, the Government have identified a complicated manoeuvre which could have led to tax avoidance. As usual, the Opposition are glad when such possible abuses are prevented by Government legislation.
Does the Economic Secretary have any idea how much revenue would have been lost had tax planners been able to indulge in such manoeuvres and avoid the tax that should have been paid? I am grateful to the hon. Gentleman for explaining the possible abuses that could have arisen and the ways in which they have been prevented by the amendments.

Mr. Ian Stewart: It is not possible to quantify the amount of potential revenue involved, as no activities of this type have taken place. The calculations would be complicated, so it is difficult to assess the extent to which the procedures have been used.
I shall briefly explain how the system would work. To exploit the defects in the Bill as drafted, a promoter of a coupon-stripping scheme would engage in something like the following sequence of operations. First, he would issue deep discount securities for cash. Then, at a later date, the cash would be invested in securities where the coupons were to be stripped. Later, but before the end of the first income period of the deep discount securities, some of the securities in which the coupon-stripping company had invested would be sold, so as to take the percentage of relevant securities that it owned below the 75 per cent. limit. The coupon-stripping company would then convert its deep discount securities into new securities and shortly after would re-acquire the relevant securities that it had previously sold. The process would be repeated.
This type of arrangement could enable the provisions of the Bill as drafted to be avoided, because paragraph !(3) at present applies only to the tests that operate on the position of the coupon-stripping company at the time when it issues the deep discount securities.
The purpose of the amendment is to stop this type of device by ensuring that the first test of a coupon-stripping operation in paragraph 1(4), which looks at what happens over the first income period, is applied in a modified way when securities are converted during their first income period.

Amendment agreed to.

Amendments made: No. 60, in page 125, line 9, leave out
'sub-paragraph (1), (2) or (3) above does not apply'
and insert
'neither of the preceding sub-paragraphs applies'.

No. 61, in page 125, line 13, at end insert—
'(4A) This sub-paragraph applies to deep discount securities issued by a company where either—

(a) they are issued on a conversion to which section 82 of the Capital Gains Tax Act 1979 applies of old securities, or
(b) they are issued by a company in exchange for old ecurities in circumstances in which section 85(3) of that Act applies or are treated as so issued by virtue of


section 86(1) of that Act,

and in this sub-paragraph "old securities" means deep discount securities to which sub-paragraph (1), (2) or (4) above or this sub-paragraph applies, except that securities to which sub-paragraph (4) above applies are not old securities unless sub-paragraph (4) (b) has been fulfilled in their case by the time the conversion or exchange concerned takes place.'

No. 62, in page 125, line 15, leave out 'one' and insert 'any'.

No. 63, in page 125, line 19, at end insert "income period" has the meaning given by paragraph 1(7) of Schedule 9 to that Act.'.

No. 64, in page 125, line 20, leave out
'subsection (4) of that section'
and insert
'section 36(4) of that Act'.

No. 65, in page 126, line 32, at end insert—
`(4A) Paragraph 8(3) of that Schedule shall not apply in the case of a chargeable security which is converted or exchanged.'.

No. 66, in page 127, line 6, leave out '(3)' and insert '(4A)'.—[Mr. Ian Stewart.]

Clause 47

LIMITED PARTNERS: RESTRICTION OF RELIEFS

Mr. Peter Rees: I beg to move amendment No. 31, in page 47, line 22, leave out from `restriction' to end of line 37 and insert
'in case of limited partners and others of reliefs in respect of losses, interest and charges and of allowances for expenditure) shall have effect where the chargeable period—

(a) in which the loss in question is sustained or incurred, or the interest or charges in question paid, or
(b) for which the allowance in question falls to be made, begins after 19th March 1985.

(2) That Schedule shall also have effect where that period begins on or before that date and ends after it if the person sustaining or incurring the loss or paying the interest or charges, or to whom the allowance falls to be made, begins after that date to carry on as a limited partner the trade—

(a) in which, or in connection with which, the loss is sustained or incurred or the interest or charges paid, or
(b) in taxing which, or by reason of participation in which, the allowance falls to be made,

and it is immaterial whether or not he was carrying on the trade otherwise than as a limited partner on or before that date.'.

Mr. Deputy Speaker (Mr. Ernest Armstrong): It will be convenient also to take Government amendments Nos. 67 to 73.

Mr. Rees: The purpose of the amendment is to allow the taxpayer to elect for the indexation of allowances to be based on the value of an asset at 31 March 1982 where the taxpayer making the disposal did not hold the asset at that time and each disposal of the asset since that time has been subject to a particular provision specifying that neither a gain nor a loss should arise. I am sure that the good sense of that will commend itself to the House and I hope that on that basis the House will accept the amendment.

Mr. Blair: I should like the Chief Secretary's assurance that we have understood the effect of the interlocking amendments. As I understand it, they tighten the anti-avoidance provisions in relation to limited partnerships by ensuring that they cover losses created by capital allowances as well as losses created by income. On that basis, the Opposition are happy to support the amendments. I wanted to ensure that we had understood the amendments correctly.

Mr. Peter Rees: I am happy to give the hon. Gentleman that assurance. The provision is designed to include capital allowances as well as charges on income and losses.

Amendment agreed to.

Schedule 11

LIMITED PARTNERS: RESTRICTION OF RELIEFS

Amendments made: No. 67, in page 127, line 35, leave out from '(3)' to end of line 38 and insert:
below—

(a) in respect of a loss sustained by him in a trade, or of interest paid by him in connection with the carrying on of a trade, in a relevant year of assessment, or
(b) as an allowance falling to be made to him for a relevant year of assessment either in taxing a trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in a trade.'

No. 68, in page 128, line 16, leave out from '(3)' to end of line 19 and insert
'above—

(a) in respect of a loss sustained by him in the trade, or of interest paid by him in connection with carrying it on, in any relevant year of assessment, or
(b) as an allowance falling to be made to him for any relevant year of assessment either in taxing the trade or by way of discharge or repayment of tax to which he is entitled by reason of his participation in the trade;'.

No. 69, in page 128, line 23, leave out
', the expenditure incurred or the interest paid' and insert 'or the interest paid, or for which the allowance falls to be made'.

No. 70, in page 128, line 26, at end insert—
'(5) To the extent that an allowance is taken into account in computing profits or gains or losses in the year of loss by virtue of section 169(1) of the Taxes Act it shall, for the purposes of section 47 of this Act and this paragraph, be treated as falling to be made in the year of loss (and not the year of assessment for which the year of loss is the basis year).'

No. 71, in page 128, line 30, leave out from '(3)' to second 'in' in line 32 and insert
'below—

(a) in respect of a loss incurred by a company in a trade, or of charges paid by a company in connection with the carrying on of a trade, in a relevant accounting period, or
(b) as an allowance falling to be made to a company for a relevant accounting period either in taxing a trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in a trade;

and'.

No. 72, in page 129, line 4, leave out from `(3)' to end of line 7 and insert
'above—

(a) in respect of a loss incurred by the partner company in the trade, or of charges paid by it in connection with carrying it on, in any relevant accounting period, or
(b) as an allowance falling to be made to the partner company for any relevant accounting period either in taxing the trade or by way of discharge or repayment of tax to which it is entitled by reason of its participation in the trade;'.

No. 73, in page 129, line 12, leave out
'or expenditure is incurred or the charges paid' and insert 'is incurred or the charges paid, or for which the allowance falls to be made'.—[Mr. Moore.]

Clause 54

TIME WHEN CAPITAL EXPENDITURE IS INCURRED

Mr. Moore: I beg to move amendment No. 32, in page 51, line 38, leave out `(3) and' and insert `(2A) to'.

Mr. Deputy Speaker: It will be convenient also to take Government amendments Nos. 33 and 34.

Mr. Moore: During our deliberations in Committee we had a full and useful debate about the clause. There was agreement that it dealt satisfactorily with the majority of capital expenditure contracts even if the agreement did not extend to the exact size of the majority. I undertook further to consider points that worried hon. Members and interested parties outside the House. My hon. Friend the Member for Kettering (Mr. Freeman) also mentioned the point. The amendments represent refinements of the basic rules in the clause and are the result of that further deliberation. Amendments No. 32 and 33 are directed at a kind of construction contract which provides for payment to be made throughout the contract as predetermined stages or milestones are reached. Often, payment for a stage becomes due when an engineer or architect has certified that the work has been completed satisfactorily. Another common feature of that type of work is that the asset becomes the property of the taxpayer as it is built and before any certificate is completed — before an unconditional obligation to pay for that part of the work arises.
In those circumstances, when the event which brings about that unconditional obligation to pay comes about early in the new year—we have specified one month—it seems to us entirely reasonable to ensure that the capital allowances treatment conforms with the balance sheet treatment and that is what amendments Nos. 32 and 33 seek to do.
On amendment No. 34, we said in Committee that if we had evidence that the present period of three months allowed in clause 54(3) was not right, we should consider the matter again and return to it on Report.
Since then, we have discussed the matter with the Institute of Taxation and the CBI, and several reasons have been put to us as to why we should support the case that some extension is warranted.
The point has been made that credit periods are often expressed in days rather than months, and in periods of up to 100 days. A 100-day credit period would fall outside the present three calendar month period. It is not unknown for a credit period to begin to run from the end of the month in which the invoice is delivered. Where a three-month credit is measured in this way it, too, would be outside clause 54 as it stands. While acknowledging that the three-month period in clause 54 should deal with the vast majority of cases, several bodies have said that four months would clear the bulk of the residue so that any additional compliance costs as a result of this part of the clause should become truly insignificant. We think that there is a case for a small extension of the credit period and we are proposing an extension of one month. This is the basis of this series of interlocking amendments.

Mr. Blair: Amendments Nos. 32 and 33 deal with a different situation from amendment No. 34. As I understand it, they deal with the situation where plant, machinery or buildings are being made for the taxpayer and payments are made in stages. The amendment deals with a situation where the work might be completed in one accounting year but the liability to pay crystallises within the first month of the next year. That is particularly so in circumstances where an architect's or engineer's certificate is issued and that is the crystallising event. It

often happens in commercial contracts, particularly building contracts. If the certificate is signed in the first month of the new accounting year, that enables the taxpayer to claim relief in the old year. In other words, it is a framework for the time when expenditure is incurred.
The other Government amendment is No. 34.

Mr. Randall: I should like to ask my hon. Friend the Member for Sedgefield (Mr. Blair) whether the Minister's explanation was adequate. I listened carefully to the Minister, and although he described the problem very thoroughly, he did not say how the amendment overcame the problems involving certificates of completion. Will my hon. Friend be asking the Minister to explain how these amendments do the job because we had a detailed discussion on this in Committee?

Mr. Blair: I am delighted to give way to the Financial Secretary if he wishes to give an explanation.

Mr. Moore: The amendment seeks only to give a modicum of flexibility at a key point where we have the particular problem of the unconditionality relationship. It gives a modicum of flexibility which might be quite important at the year end. That is the essence of what it does.

Mr. Blair: To try to flesh out what the Financial Secretary has said for the benefit of my hon. Friend the Member for Kingston upon Hull, West (Mr. Randall), the time when capital expenditure is incurred is essential in deciding when a claim for capital allowances can arise. The question is, at what point is that capital expenditure incurred? There can be situations where it is easy to say that the capital expenditure is incurred because the obligation to pay has become unconditional, but there may be circumstances in which it is more difficult to say that the obligation to pay has become unconditional, for example, where there is a series of stage payments and a certificate is required to be issued by an architect or engineer saying that the work is up to a particular standard. This amendment gives a little bit of leeway. It is difficult to pluck a figure out of the air, but the amendment has taken a one-month date and is saying that in the circumstances, where the certificate is issued within one month of the new accounting period, a taxpayer can still make the claim in respect of the old accounting period. That flexibility has been introduced.
We debated amendment No. 34 at some length in Committee from two different angles — first, the circumstances where the credit period allowed by the Government, which was a three-month period, may be unnaturally short and, secondly, the circumstances where the normal payment time might be less than three months and there could be some prospect of avoidance there. The Under-Secretary has extended the period so that we are dealing now with a period of four months rather than the original period of three months. That means that when credit is given up to a four-month period it is still, when the obligation to pay becomes unconditional, crucial to determine when the capital allowance can be claimed.
The difficulties that I raised in relation to this in Committee still remain. We are assuming that the credit period may be unnaturally extended, say beyond the four-month period, to allow avoidance. There may be circumstances where the normal credit period might be less than four months and, by allowing a four-month period, there would be avoidance.
I appreciate that the Financial Secretary has decided, on consideration, that such avoidance is a small possibility, but I should be grateful if he would respond to this point. I repeat what I said in Committee. We are trying to ensure that the credit period given is in accordance with normal commercial usage. Those words are used in a different part of the clause and I am still not entirely convinced that they could not have done this in a better way. I appreciate that these are difficult matters to judge.
The Minister has obviously taken account of the representations that have been made to give some sort of leeway in introducing the amendments. I hope that it will not be thought churlish if I contrast the ease with which perfectly sensible amendments may be introduced and representations from several parts of industry can be listened to when we are discussing such things as capital allowance with the less than listening Government who dealt with some of the matters about which we were talking yesterday. I am thinking in particular of what my hon. Friend for Birmingham, Hodge Hill (Mr. Davis) said about work-place nurseries.
I appreciate that the Government have to pay attention to the representations that have been made, but one sometimes wonders whether the Government do not pay more attention to representations from certain quarters than they do to representations from other quarters. If the alacrity with which the difficulties relating to capital allowances for companies have been dealt with was transferred across the broad spectrum of taxation problems, we might have a much more efficient and equitable taxation system.

Mr. Randall: I am still not happy with the answer that the Financial Secretary gave. I am sure that he has attempted to do this in the best possible way. The answer to the tripartite discussion that we had is that the Government have introduced a modicum of flexibility. We are talking about completion dates for construction contracts, payments and so on. However, we should rise above that to see what this clause means in quantitive terms, for example, to the construction industry in terms of capital allowances.
What consultations has the Minister had with the industry, and what has it said about the modicum of flexibility? I have not looked up the word modicum in the dictionary, but it does not convey the idea of a huge change in capital allowances for the construction industry. I see it as a rather small change. Perhaps the Minister could give us some feel for the order of magnitude of the relief given to the construction industry through the capital allowances.

Mr. Moore: I was using "modicum" as the description of one month in relation to a year. I apologise if the word lacked a certain precision. The extent to which this is a complex sector was discussed in Committee, as the hon. Member for Sedgefield (Mr. Blair) said. We were trying to put into statutory form a complex new attempt to interpret a set of commitments to pay by purchasers at a point at which they became absolutely unconditional obligations. That was an entirely new concept and the basic purpose was to try to put on the statute book normal accountancy practice. As the hon. Member will remember from our debates upstairs, normal accountancy practice was a rather difficult thing to pursue, locate and establish.

There seemed to be many different principles and it was an attempt to fit correctly into the pattern and practice of the majority of British industry.
10.15 pm
In Committee one of my hon. Friends and one of the hon. Gentleman's hon. Friends raised the matter of milestone contracts and the problems of the construction industry. To that extent, my officials continued, as I said they would, the whole process of attempting to make sure that our legislation got the issue right. Because of the nature of accountancy practice in putting these obligations unconditionally on to the accounting books of companies, my officials found that they differed somewhat from our attempt to get the unconditional obligation to pay. In an important part of British industry, we tried to find a modicum in terms of a month to allow flexibility. I cannot pretend that the industry is totally satisfied with that.
In the judgment of the Inland Revenue and the Government, that brings to bear a fair balance of judgment, and, as the hon. Member for Sedgefield said, it gives protection to the Revenue as well as helping the accounting systems of our major construction companies.
I would not suggest that the hon. Member for Sedgefield was being churlish, because he would find great difficulty in ever being churlish. In the debates in Standing Committee, we were trying to put into statutory form for the first time the normal accountancy practices, and it did not seem unwise to take account of the advice of industry about that. As he said, there was a dispute — both sides were displayed in Committee — about whether it was to be three or four months.
In Standing Committee, the hon. Gentleman rightly identified one of the problems of the Government. which was to try to ensure that one could find a solution — I accept his argument that it is a matter of judgment—that does not create a possibility or encourage the problems of avoidance. I understand the points he is making and I think there are two reasons why any worries are likely to be misplaced. Perhaps we did not elaborate sufficiently in Committee. Most buyers and sellers operate at arm's length, with one wanting to pay the lowest price possible — a long credit period would be likely to affect the price — and the other party to the transaction trying to obtain his money as soon as possible. We think it improbable that present practices in the market place would be much affected or would change because of clause 54, as amended.
I went on to describe upstairs the workings of the anti-avoidance feature. I listened very carefully to what the hon. Gentleman said. Obviously, we have come to a judgment on the three points I made earlier after further discussion with people outside. If, having established this, we judge that the clause is in any way being abused, we will come in very quickly to seek to tidy it up. We are trying to judge the right length of time. I will be happy to come back and inform the hon. Member if we think it merits further scrutiny.

Amendment agreed to.

Amendments made:

No. 33, in page 51, line 42, at end insert—
'(2A) If, under or by virtue of any agreement,—

(a) as a result of the issue of a certificate or some other event, an obligation to pay an amount of capital expenditure on the provision of an asset becomes unconditional, and


(b) at a time before that obligation becomes unconditional, the asset becomes the property of or is otherwise under the contract attributed to the person having that obligation,

then, in a case where the obligation referred to in paragraph (a) above becomes unconditional within the period of one month beginning at the end of a chargeable period or its basis period but the time referred to in paragraph (b) above falls at or before the end of that chargeable period or its basis period, subsection (2) above shall apply as if the obligation became unconditional immediately before the expiry of that period.'.
No. 34, in page 52, line 4, leave out 'three' and insert 'four'. —[Mr. Moore.]

Clause 55

ELECTION FOR CERTAIN MACHINERY OR PLANT TO BE TREATED AS SHORT-LIFE ASSETS

Mr. Neil Hamilton: I beg to move amendment No. 155, in page 53, line 4, leave out '1986' and insert '1984'.
This amendment is designed to bring forward the date on which the new capital allowance treatment for short-life assets comes into force from 1 April 1986. The Government have accepted that short-life assets require a special regime, and I applaud the measure they have brought forward. It will allow the taxpayer to elect within two years of the purchase of the asset for the asset to be treated as short life and he would therefore be entitled to receive a balance allowance or suffer a balancing charge if he disposed of his acquisition.
The amendment would apply this treatment to all assets from the time that the 100 per cent. first-year allowances for machinery and plant were withdrawn rather than waiting until only the 25 per cent. reducing balance annual allowances were available. It has to be remembered that depreciation starts when the asset is purchased.
The second effect of the amendment is that it would help ease the dip in capital allowances during the transitional period from the old 100 per cent. first-year allowance system. The bottom of the dip is in 1986–87. If the commencement of the short-life treatment is brought forward from 1 April 1986 to 1 April 1984, some balancing allowances will occur in 1986–87 and reduce the dip, making it less deep. Even if the balancing allowance occurs before 1986–87, it will improve the company's cash flow and help it cope with the dip that much better.
The amendment is an ameliorative measure and I hope that it will appeal to my hon. Friend.

Mr. Blair: The amendment makes me suspicious, but I am not entirely sure why. I want to make sure that I have understood exactly what is being proposed.
Clause 55 gives a certain exceptional treatment to short-life assets and in many ways the amendment results from what happened last year and the problems arising from the 1984 Budget taking away capital allowances.
The improvement in capital allowances for short-life assets applies at present to expenditure incurred after 1 April 1986, and that is when first-year allowances will be phased out. The amendment would bring forward the date to April 1984, and that would be the start of the phasing-out period and not its conclusion.
In a perfect world it would mean that the exemption of short-life assets from the provisions of last year's Budget would be given from the moment the first-year allowances

started to be phased out rather than there being somewhat of a hiatus between April 1984 and April 1986. If the election for certain machinery to be treated as short-life assets and the preferential treatment given to them can only be given after 1 April 1986, there is the period between April 1984 and April 1986 when the first-year allowances are being phased out and the treatment of short-life assets will not be as good as it will after 1 April 1986.
I always approach amendments tabled by the hon. Member for Tatton (Mr. Hamilton) with an extremely open mind. I always assume that they will fairly distribute the burden between the taxpayer and the Revenue. But my hon. Friends behind me who have greater experience than I in these matters tell me to be more cautious. I should like to ask the Financial Secretary — it may be that the hon. Member for Tatton will deal with it when he comes to press or to withdraw his amendent — whether the difficulties of administration with this type of amendment would not be considerable. There would be every opportunity going back to 1 April 1984 for elections to be made in circumstances where perhaps there was a very much greater burden on the Revenue than might otherwise have been thought.

Mr. Tim Smith: I cannot see that the amendment will be of much value. In the period from 1 April 1984 to 31 March 1985 a taxpayer could get an allowance of 75 per cent. on the asset which he acquired. Therefore, of what value will the amendment be?

Mr. Blair: Between now and 1986 the amount that could be claimed will not be 75 per cent. but less than that — 50 per cent. this year. If the date were put back to April 1984, a taxpayer could take full advantage of the relief under clause 55 back to April 1984. Therefore, the amendment would bring taxpayers an advantage.
The difficulty with the amendment is that it appears to be open to potential abuse, but the Financial Secretary will no doubt give us the answer to these conundrums.

Mr. Randall: I am a little suspicious, because we have already had a similar amendment from the hon. Member for Tatton (Mr. Hamilton). He is a charming man, but I am suspicious of him on financial matters. I do not trust him — I mean that in the kindest sense. I am not suggesting that he is dishonest, but I do not understand his motives.

Dr. Marek: It is precisely because we understand the hon. Gentleman's motives that we are suspicious. Conservative Members represent the rich and the idle rich. We know whom they represent and what their motives are.

Mr. Randall: I am a gentle person, and I am not prepared to go as far as my hon. Friend the Member for Wrexham (Dr. Marek).
We are discussing bringing forward the date when short-life assets can be paid. The hon. Member for Tatton suggested that that would apply to all assets where the 100 per cent. capital allowances have been withdrawn. He talked about the improvement in companies' cash flows, and clearly the amendment would achieve that. One can see why companies would like to claim their allowances earlier because of the obvious consequences in that respect.
I feel that there is something behind the amendment which the hon. Gentleman did not fully describe. Will the


Minister explain fully the consequences of the amendment to business in terms of money from the Exchequer? Would the amendment be particularly beneficial? Finally, what scope exists for abuse?

Mr. Moore: I shall respond quickly to the question of cost. It is always the Treasury's unfortunate task to put cost on to the record. The cost would not begin until 1987–88, when it would be £10 million. In 1988–89 it would be £50 million, in 1989–90 £70 million, and thereafter there would be a saving on present costings.
Although I shall not go into the underlying strategy of the capital allowance changes — we may have an opportunity for that later — it may be useful to remind the House that from April 1986 the capital allowance system for machinery and plant will be based on a pool of expenditure, attracting an annual allowance of 25 per cent. on a reducing balance basis. That will enable most business equipment to be written off over a period, but on average it will more than fairly reflect its useful life. We recognise that, for those assets which depreciate much more quickly than the average, something more is needed, and the Chancellor of the Exchequer announced the new de-pooling arrangements which we now know as clause 55. According to advice from my Revenue officials, we do not see much problem in terms of additional administration. Despite the suspicions of Opposition Members, we do not see the problems of potential for abuse — as opposed to the cost, which is quite a different question — or excessive administrative difficulties.

Mr. Blair: Where does the cost come from?

Mr. Moore: I think the hon. Gentleman will appreciate the point when I go through the arithmetic. It is clear that there is a modest advantage entailed.
My hon. Friend the Member for Tatton (Mr. Hamilton) talked about the dip — the point raised by the CBI. I refer to it in the context of the CBI's reference, as opposed to endorsing the concept of a dip. As my hon. Friend will know, there will always be difficulty in any period of transition where major change is enacted. The Government were very conscious of that in 1984, when framing the capital allowance proposals to give assistance specifically during that transitional period. Therefore, the Government advanced, first by one year, the pattern of reduction in corporation tax rate. Clearly, the reduction in rate will benefit the company sector. Those are factors which have to be taken to the other side of the ledger. Equally, we are making those changes at a time of greatly improving corporate profitability and liquidity, which is an important factor in relation to the proposal.
The option to de-pool assets is to be an integral part—this is the point that the hon. Member for Sedgefield (Mr. Blair) was making—of the new capital allowance system and not part of the old one, which does not come to its end until 31 March 1986. In the period from March 1984 to 1985, expenditure on business machinery and plant attracted a first-year allowance of 75 per cent., and in the period April 1985 to March 1986 it attracts a first-year allowance of 50 per cent. It is only from April next year that, for businesses generally, first-year allowances disappear altogether, and the new system, including the

refinement for short-lived assets, is fully in place. As opposed to what my hon. Friend the Member for Beaconsfield (Mr. Smith) said, I know that my hon. Friend the Member for Tatton will appreciate the details of the impact on company investment during the transitional period.
In 1984–85, with a 75 per cent. first-year allowance, the company's investment is written down by 82 per cent. in just two years, almost to residual value. In 1985–86, the second transitional year, with a 50 per cent. first-year allowance, within three years nearly three-quarters of the initial cost will have been written off for tax. Against that background I do not see any case for bringing forward the starting date for just one element in the new system. The new system is an integral system. I hope that my hon. Friend the Member for Tatton, having probed the matter, will not press his amendment.

Sir William Clark: If there is any suspicion relating to my hon. Friend the Member for Tatton (Mr. Hamilton), that suspicion relates also to me, as I signed the amendment.
The Minister referred to the cost to the Exchequer. Will he agree that it is only a cash flow loss and nothing whatever to do with loss of revenue, and that my hon. Friend is only trying to give a cash flow advantage?

Mr. Moore: My hon. Friend is right. That was the whole nature of the debate, in which so many of us have been involved, on capital allowances. It is a debate relating to cash flow. The amendment, in the names of my hon. Friends the Members for Tatton and Croydon, South (Sir W. Clark) seeks to assist what they see as the particular problem of British industry. In the Government's judgment, we have covered the problems in the transitional arrangements.

Mr. Neil Hamilton: As my hon. Friend has vindicated my character and allayed the suspicions of Opposition Members, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made:

No. 35, in page 54, line 23, at end insert—
'(5A) If, at a time before the notional trade would otherwise be permanently discontinued for the purposes of section 44, the short-life asset begins to be used otherwise than for a qualifying purpose, within the meaning of section 64 of the Finance Act 1980 (leased assets used for certain purposes) and the occasion of its beginning to be so used falls within the requisite period, within the meaning of that section, then at that time—

(a) the notional trade shall be treated as permanently discontinued but no balancing allowance or charge shall be made to or on the trader by reason thereof, and
(b) the amount which, apart from this subsection, would be the trader's qualifying expenditure for the chargeable period in which, or in the basis period for which, the asset began to be so used shall for the purposes of section 44 (as it has effect in accordance with section 65 of the Finance Act 1980) be added to the trader's qualifying expenditure for that chargeable period in respect of the separate trade referred to in subsection (2) of the said section 65.'.

No. 36, in page 54, line 24, leave out from 'if' to 'the' in line 25 and insert
'at a time before the notional trade is permenantly discontinued for the purposes of section 44.'.

No. 37, in page 54, line 43, leave out 'and this subsection'.—[Mr. John Moore.]

Clause 57

ENTITLEMENT TO ALLOWANCES FOR MACHINERY AND PLANT WHICH ARE FIXTURES

Mr. Moore: I beg to move amendment No. 38, in page 56, line 42, at end insert—
'(8) Nothing in subsection (1) above affects the entitlement of any person to an allowance by virtue of section 85 of the Capital Allowances Act 1968 (allowances in respect of contributions of a capital nature) and, accordingly, in paragraph 15(6) of Schedule 8 to the Finance Act 1971 (modification of the operation of section 85 in relation to allowances for machinery and plant) after the words "the said Chapter I", where they last occur, there shall be inserted "or Schedule 15 to the Finance Act 1985".'.
This deals with a matter discussed in Committee in consideration of amendments tabled by the hon. Member for Sedgefield (Mr. Blair) and my hon. Friend the Member for Tatton (Mr. Hamilton). We have looked closely at the problem identified by that discussion, and the amendment is the result.
As it stands, clause 57 allows only the person to whom fixtures are treated by schedule 15 as belonging to receive capital allowances on those fixtures. However, it has been put to us that this could upset long-established methods of commercial funding where, for example, one company contributes to the capital expenditure incurred by another on machinery or plant which is a fixture, and in which both have a commercial interest. The amendment will allow these arrangements to continue to be made unaffected by the clause and its schedules.
While commending it to the House, I commend my hon. Friend the Member for Tatton and the hon. Member for Sedgefield for their diligence in ensuring that we had the benefit of their advice.

Mr. Blair: I am grateful to the Financial Secretary for having taken account of our representations. I believe that this deals with the problems of contributor companies.

Amendment agreed to.

Schedule 15

CAPITAL ALLOWANCES FOR FIXTURES

Amendment made:

No. 74, in page 141, line 30, leave out 'debtor' and insert 'person having that right'—[Mr. Moore.]

Mr. Moore: I beg to move amendment No. 75, in page 147, line 46, at end insert
'and
(c) the occasion of the fixture ceasing to belong to the former owner is not its permanent severance from the relevant land (whether on disposal, demolition, destruction or otherwise)'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 76 to 78.

Mr. Moore: These four amendments substantially alter the rules which require disposal value to be brought into account when a fixture is treated as no longer belonging to someone for capital allowance purposes.
The difficulties at which the amendments are aimed arise because the value of fixtures turns very much on the value of land to which they are attached. At the extreme, the fixtures in a building may be very valuable, but they are not worth much to someone whose lease has only one

day to run. The rules which we had originally intended are contained in paragraph 9 of schedule 15. Paragraph 9 provides a general set of rules which require the adoption of a notional sale price based on an apportionment of some arbitrary assumptions about the open market value of the interest in the land to which the fixtures are attached.
Originally, this approach was regarded as necessary so that on the basis of that open market valuation at least some capital allowances could be recovered from the old owner and the fixtures at the same time as the new owner began to receive allowances.
It has been widely suggested by the British Property Federation, the CBI, all the accountancy bodies and the Institute of Taxation that the rules should give greater recognition to the actual consideration — the hon. Member for Sedgefield referred to this — if any, of the fixtures which passes between the parties concerned, assuming that they are acting on an arm's length basis. It is that which the amendments do.
The amendments in practice will considerably reduce the extent to which open market value calculations have to be made and correspondingly will increase the extent to which the actual sale proceeds which pass between the old and new owners of a fixture can be brought into the old owner's capital allowances computation.
We believe that, even though it is longer than the present set of rules, this alternative approach to dispose of value can be widely welcomed by those concerned with this difficult subject, whether directly or as professional advisers, since a great deal of work on valuations and apportionments will be avoided altogether.

Mr. Randall: I have a brief question. I was interested to hear the Minister's explanation in which he suggests that we de-couple certain fixtures from assets like land and other assets which should not be taken into account in deciding values when computing the capital allowances. I am wondering whether, in carrying out the computations, this de-coupling exercise might be susceptible to abuse. Land is a fairly cut and dried issue, but there must be other examples where it would be necessary for the Inland Revenue to de-couple the assets in such a way that the boundary becomes blurred and a judgment therefore more difficult to make. Can the Financial Secretary say whether he thinks that in some of the other examples where this exercise will need to take place there might be the opportunity for abuse?

Mr. Moore: I shall examine very carefully the hon. Gentleman's point. We are very conscious of the problem of avoidance. The hon. Member for Workington (Mr. Campbell-Savours) raised in Committee a similar point and we gave assurances upon it. I am happy to give assurances on this point. However, I shall look at the matter again and will write to the hon. Gentleman if I find that there is any need to consider the matter further.

Amendment agreed to.

Amendments made: No. 76, in page 148, line 3, leave out 'this paragraph' and insert 'sub-paragraphs (1A) to (3A) below'.

No. 77, in page 148, line 4, leave out from beginning to 'the' and insert—
'(1A) Subject to sub-paragraph (3A) below, if the occasion of the fixture ceasing to belong to the former owner is the sale of the qualifying interest, the price referred to in sub-paragraph (1) above is that portion of the sale price of the qualifying interest


which falls (or, if the purchaser were entitled to an allowance, would fall) to be treated for material purposes as expenditure incurred by the purchaser on the provision of the fixture.
(1B) If the fixture ceases to belong to the former owner by virtue of sub-paragraph (5) of paragraph 7 above, the price referred to in sub-paragraph (1) above is so much of the capital sum referred to in sub-paragraph (1)(c) of paragraph 5 above as falls to be treated for material purposes as expenditure by the lessee on the provision of fixture.
(2) If neither sub-paragraph (1A) nor sub-paragraph (1B) above applies.'.

No. 78, in page 148, leave out lines 14 to 22 and insert—
'(3A) If the sale referred to in sub-paragraph (1A) above is at a price lower than that which the qualifying interest would have fetched if sold in the open market, that sub-paragraph shall not apply unless the purchaser's expenditure on the acquisition of the fixture can be taken into account as mentioned in section 44(6)(b)(i) of the Finance Act 1971.
(3B) If the occasion of the fixture ceasing to belong to the former owner is the expiry of the qualifying interest, then, except in so far as the former owner receives any capital sum, by way of compensation or otherwise, by reference to the fixture, the disposal value of the fixture which falls to be brought into account under section 44 of the Finance Act 1971 shall be nil.
(3C) In any case where—

(a) the disposal value of a fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971 on the permanent discontinuance of the trade in circumstances where that value falls to be determined under paragraph (e) of subsection (6) of that section; and
(b) before the occurrence of the later event referred to in that paragraph, the fixture is not permanently severed from the relevant land,

that paragraph shall apply as if the reference therein to paragraph (a) and paragraph (b) of that subsection were omitted; but if the event which follows the discontinuance of the trade is the sale of the qualifying interest, the disposal value of the fixture to be brought into account under that section shall be that portion of the sale price referred to in sub-paragraph (1A) above.
(3D) If the disposal value of the fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971 on its beginning to be used wholly or partly for purposes which are other than those of the trade, paragraph (f) of subsection (6) of that section shall apply as if the reference to the price which the machinery or plant would have fetched if sold on the open market were a reference to that portion of the price referred to in sub-paragraph (2) above.
(3E) If, on the occasion of the fixture being treated, by virtue of paragraph 7 above, as ceasing to belong to the former owner, another person incurs expenditure on the provision of the fixture, there shall be disregarded for material purposes so much (if any) of that expenditure as exceeds the disposal value which the former owner is required to bring into account in accordance with section 44 of the Finance Act 1971.'.—[Mr. Moore.]

Clause 60

AGRICULTURAL LAND AND BUILDINGS

Mr. J. Enoch Powell: I beg to move amendment No. 39, in page 57, line 23, leave out '1986' and insert '1989'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 40, in page 57, line 27, leave out '1987' and insert '1990'.
No. 41, in page 57, line 42, at end add
'(5) For the purposes of this section as it applies for income tax purposes the date "6th April 1989" shall be substituted for the date "1st April 1986" in subsection (1) hereof and the date "6th April 1990" shall be substituted for the date "1st April 1987" in subsection (1)(b) hereof.'.

Mr. Powell: This amendment, together with amendments Nos. 40 and 41, has the effect of modifying by deferring the severe impact upon the agricultural industry

of the elimination of the initial allowance and the reduction of the annual write-off from 10 to 4 per cent. per annum. The amendments relate to the Bill as a United Kingdom Bill. Most of the right hon. and hon. Members who have put their names to these amendments represent Northern Ireland constituencies. That is not surprising, since the impact and the arguments in relation to the change are probably the most severe in relation to the general run of the farming industry in Northern Ireland. Nevertheless, we are happy that the broad acres of Cheshire have been associated by the hon. Member for Tatton (Mr. Hamilton) with the drumlins and mountains of Ulster.

Mr. Campbell-Savours: And bogs.

Mr. Powell: Bogs could well, as the hon. Member for Workington (Mr. Campbell-Savours) suggests, be added to the landscape for the sake of completeness.
The reduction of these allowances was made in a specific context. It was made in connection with corporation tax relief. Consequently, for most farm businesses that are not liable to corporation tax there have been the disadvantages, unaccompanied by the counter-balancing advantages. In the case of the writing down figure in particular, the reduction from 10 to 4 per cent. per annum is severe in its impact upon most forms of agricultural capital. There are certain forms of agricultural capital where a 25-year period of write-off might be reasonable, but for most agricultural buildings a period much shorter than 25 years before they are required to be renewed and replaced is now reasonable. Buildings that are associated with use for animals or buildings where the processes of corrosion, as in the handling of slurry, are relevant are particularly short in life. Consequently the write-off over 25 years instead of 10 years is serious in its impact.
I know that it can be argued that there is always at the end of the life of an asset a balancing allowance which can be made if the value has been unexhausted by the annual write-off. However, that does not affect the financial position of the farm or undertaking during the life of the asset. It remains a disadvantage that an asset that is replaced after 10 years has been depreciated over 25 years.
The supporters of the amendments appreciate that the new system of initial and write-off allowances hangs together. Therefore, we ask only for a deferment of the impact so that those who will be severely affected will have the opportunity to rearrange the finances of their businesses to meet the new conditions under which they will have to operate.
The problem comes home particularly to the small farmer who will be affected by the income tax rather than the corporation tax aspects of the new provisions. I hope that my right hon. and hon. Friends will further illustrate to the Government why a deferment of the impact for three years, as proposed by the amendments, would be just and welcome.

Mr. Neil Hamilton: I endorse the closing comments of the right hon. Member for South Down (Mr. Powell). The amendments are designed to ameliorate the position of the small farmer and the family farmer who is not incorporated.
When we discussed in Committee a number of other amendments affecting agriculture, I was the butt of some


ridicule and ribaldry from Labour Members for defending an interest that was already heavily subsidised by the taxpayer. As the House knows, I hold no brief for the common agricultural policy and all the anomalies and absurdities that characterise it.
The income of a small farmer is relatively low, although he has a large capital asset, the value of which has been built up largely because of the CAP. The amendments seek to ameliorate the position of farmers who survive on low incomes, who will be greatly affected by the speed at which we move from the old system of allowances to the new one.
Most farmers in my constituency are dairy farmers and they have been adversely affected by changes in the CAP. Their incomes have been depressed and their businesses weakened. I am no friend of the surpluses inherent in the CAP and I want us to move to a more rational system, but the transitional period must be a reasonable one. The amendments seek to help the small family farmer for a transitional period.
The amendments would also give an impetus to conservation of the countryside. When farmers' incomes are reduced, they are less likely to spend money on farm buildings and other visible assets. As a result, the countryside may be adversely affected. Several farmers in my constituency have spent money on buildings so that they merge attractively into the countryside. All hon. Members would applaud that aim. It is a question of improving cash flow so that such schemes can be continued.
The 4 per cent. writing down allowance does not represent a realistic rate of depreciation for many modern farmers. That is unfortunate. It is extraordinary that, under the new system, the balance of tax relief is moved in favour of investment in machinery and against buildings, the construction of which creates more employment. The machinery write-off in the first year will be 25 per cent. instead of 100 per cent., but for farm buildings the write-off in the first year will be 4 per cent. instead of 30 per cent. Machinery allowances are reduced by a factor of four, but for buildings the factor is over seven.
I agree with what has been said about the unincorporated business. There is a counter-balancing advantage for incorporated businesses in the reduction in corporation tax. I applaud the Government's strategy, but I hope that we can do something for the income tax payer rather than the corporation tax payer. The amendments suggest changes to help farmers.

Mr. William Ross: The hon. Member for Tatton (Mr. Hamilton) referred to small farmers. Very few large farmers exist in Northern Ireland. By reducing allowances, the Government are simply trying to return to the position which prevailed before the high inflation rate under which we have suffered in the last 10 to 15 years.
It is laudable for any Government to take such steps. However, the Government are treating all farm and industrial buildings as if they were the same. I declare an interest since I own a small farm. I have a farming background and I know how to dig a drain. That is how I earned my living for 15 years.
The Government are treating buildings which are different as if they were the same. They do not seem to

recognise that farm buildings are different from industrial buildings in many respects. Industrial buildings have a long life; even if they cannot be used for their original purpose they are so adaptable that they can be used for many other purposes. Most farm buildings have a relatively low output and many are used for only part of the year. Cattlehouses, for instance, are used only in the winter months. During those months the metal work deteriorates more quickly than it does in other buildings. That is a fact of life. If barley is dried in a building it will deteriorate even more quickly.
The life span of farm buildings varies according to the use to which they are put. For instance, a store is a simple and cheap building which will usually last a long time, but a silage pit is a building which has to be roofed over in the wetter parts of the United Kingdom and it is costly although it is used for only a short time each year. Pig and poultry buildings are intensively used. We must give closer consideration to the matter.
Many farm buildings, especially those erected for pigs and poultry, are highly specialised and cannot be used for any other purpose. Big changes have taken place in farming in the last 10 to 15 years — so much so that once profitable enterprises have vanished from the scene, especially in Ulster. It is not apparent to those who are not farmers that severe working conditions apply on farms during the winter months. That is why buildings are vital, for the comfort not only of farm animals but of those who look after them.
A highly specialised work force has grown up in erecting farm buildings, with many people employed permanently on that work. In recent years, however, farming has suffered a number of blows which have reduced the amount of money available for the erection of farm buildings. The industry has lost the initial allowance, the writing down allowances are being reduced and there are lower farm grants. It is clear from what was said in the House on Monday that those grants will be greatly reduced in the future. The cash flow problems of farmers will increase considerably in the near future, and I regret that the Government seem to be adding daily to their problems.
In Northern Ireland — I cannot speak for the rest of the United Kingdom—most industry receives industrial development grants for machinery. Farming does not. Farm buildings have always had a short writing down period. Conditions have not changed so much in recent years as to enable the Government to depart from the long-established practice in that respect. I hope that the Government will look again at this issue, will take on board the representations that are being made tonight and will act to relieve farmers of the burdens that are currently being heaped upon them.

Mr. James Nicholson: I support what hon. Members have said on this subject. Like my hon. Friend the Member for Londonderry, East (Mr. Ross), I have an argicultural interest and am well aware of the problems that are being caused to the industry in Northern Ireland.
The proposed changes will greatly add to the difficulties of those engaged in agriculture. The proposal to extend the 10-year write-off period to 25 years will mean many agricultural buildings becoming obsolete and having to be replaced by more modern ones even before the old ones have been written off. My right hon. Friend the Member for South Down (Mr. Powell) outlined the


position correctly when he referred to the various types of agricultural building, and I will not go over the ground that he covered.
The present system has been in operation for over 40 years and has proved adequate. We are asking for farmers to be given a reasonable period in which to adjust to the changes. Cash flow is vital to any business, including farming. In the long term and the short term, cash flow plays an important part, and I urge the Minister to consider the types of people who will be most affected by the changes.
In Northern Ireland, the small family farmer will be the hardest hit. The young farmer trying to get started at the bottom of the ladder will be hard hit as well. The proposals will be most damaging to those people. They will not be able to claim relief through the reductions in corporation tax. Few, if any, small farmers will be able to alleviate their problems if there is no offsetting.
11 pm
How many farmers are incorporated? Such farmers are few and far between in Northern Ireland. Farm businesses have already suffered from the changes in plant and machinery allowances which were introduced last year. I am informed — I may be corrected on this — that the changes will cost agriculture more than £400 million in the five-year transitional period. We must consider also what will happen in the transitional period for building allowances. Judging by present ceilings, the change could cost agriculture another £400 million.
Unfortunately, the changes can lead only to a severe decrease in investment in agriculture. Because the small farm system in Northern Ireland means that it is necessary to apply a more intensive system of agriculture than in other parts of the United Kingdom, this policy will be to our detriment. We live in a time when technology can transform any sector. This feature is most pronounced in the intensive sector of horticulture. Existing buildings can become obsolete and outdated within a short period. Will the Government award any recognition to this point, as it will concern us in the future?
Agriculture is facing a difficult time and it is unwise to add an extra burden. I ask the Financial Secretary to reflect on the changes last November in the farm capital scheme when the amount available was reduced by £40 million. My hon. Friend the Member for Londonderry, East referred to this week's announcement on the scheme. We can expect another large slice to be taken from the farm capital scheme. That is another reason why the Financial Secretary should afford the amendment consideration and support. Such a proposal, if passed, would have far-reaching consequences for United Kingdom agriculture, and more particularly for Northern Ireland.

Mr. Randall: I have great reservations about the amendment. The right hon. Member for South Down (Mr. Powell) is essentially asking for special arrangements to be made for agriculture because of the reduction in allowances associated with the corporation tax changes. I do not regard tin sheds, slurry sheds, barns, and so on as short-life assets. I cannot understand why it is necessary to give agriculture yet another boost in this way while other industries are deprived.
I should like the high tech industries to be given even more help. I know that the Government are making special arrangements to assist those industries. This is as a result of the 1984 changes arising from the Chancellor's

statement on these matters. The deferment to which the right hon. Member for South Down referred is bound to mean that less money will be available for other industries. It would be of interest if the Minister can tell the House how much that will cost.
We are aware that all businesses—farming, industry and financial institutions — want to improve their cash flow, but the amendment amounts to giving agriculture special assistance. The hon. Member for Tatton (Mr. Hamilton), who supported the amendment, is asking for yet another subsidy. It is not a lump sum handout or anything like that; it is a revenue subsidy. I understand the thrust of the argument, but I cannot support the amendment.

Dr. Marek: I am not sure that I go along completely with my hon. Friend the Member for Kingston upon Hull, West (Mr. Randall). I hope that the right hon. Member for South Down (Mr. Powell) might elucidate a little. My experience is that small farmers in many areas need help. They do not all conform to the image commonly held of the farmer in East Anglia growing a great deal of cereals, driving a Jaguar and having two or three Range Rovers in a shed.
I have been to Northern Ireland. It is similar to Wales. I do not know what the pattern of farming in Ulster is or what the acreage is. I imagine that it is not large and that many farmers farm small acreages and just manage to make a living. I also believe that the land is not especially good. If I am wrong no doubt hon. Members will tell me. That is true of many parts of Wales.
Small farmers need help. If the amendment seeks to help them I support it. There is, however, a caveat. I do not know whether the amendment will also help the large unincorporated farmer. If it does, the amendment is not tuned finely enough. That is the problem. I do not know what effect the amendment will have. No doubt the Minister will enlighten us about that.
My sympathies are with the small farmer. More needs to be done for him, but I am not sure that the amendment is the right way to go about it.

Mr. Blair: Like all my hon. Friends, I am sympathetic to small farmers. The Labour party will long be remembered for the position that it took on the dairy quotas that the Government introduced which seriously hit many small farmers.
This amendment and the clause apply to farmers in general. It does not distinguish between large and small farmers. We must decide whether we should single out agriculture for yet another subsidy, because whether or not one calls it a subsidy that is what the provision amounts to. Those who vote for the amendment will have decided to give agriculture special treatment. There is no way of getting out of that.
One of the features of our debate this evening has been the degree to which certain hon. Members opposite have been totally against subsidies in general but wholly in favour of subsidies in particular. The hon. Member for The Wrekin (Mr. Hawksley) spoke about business within his constituency and the hon. Member for Tatton (Mr. Hamilton) talked about particular interests. They appear to adopt a view of the economy which is wholly inconsistent with the view that they adopt as monetarists in other areas. If only the same concern was shown for building up our industry, in particular our manufacturing


industry, that is shown towards the special interests which they represent we would all be much better off. The truth of the matter is that when allowances were done away with last year there was a substantial withdrawal of the incentive to invest in industry. We are still dealing with those problems this year.
Opposition Members are unable to support these amendments, although we are not unsympathetic to the problems raised by hon. Members. Capital allowances should be looked at as they relate to industry in its entirety and not to individual sectors which may have the particular sympathy of Conservative Members.

Mr. Moore: I shall turn my attention to the specific amendments of the right hon. Member for South Down (Mr. Powell). The principal purpose of his amendments is to defer by three years the proposed reduction in the rate of agricultural building allowance. I am very conscious of the contributions which he and his hon. Friends have made about particular problems in the agricultural industry in the areas they represent. Having said that, it is essential that I put that request for a deferral into the context of the overall background of the Government's proposals last year. I should mention as an aside that the detailed proposals were announced in March 1984 and do not go into effect until April 1986.
As the House will know, the Government last year embarked on a major reform of business taxation. Our aim is to move to a system which is much more neutral as between different types of investment so that the pre-tax return on capital investment rather than the post-tax return becomes the basis of commercial decision making. Coupled with this is a determination to achieve lower tax rates on business profits since high rates are themselves a disincentive to investment and therefore to worthwhile economic progress.
We reduce the small companies rate of corporation tax to 30 per cent. with immediate effect. In addition, the main rate of corporation tax is being reduced by one-third over the period from 1984 to 1986. And for income tax, which is of principal concern to the unincorporated sector, there are a number of significant benefits flowing from both last year's Finance Bill and this year's.
These include real increases in income tax thresholds which continue the progress made in reducing levels of personal tax since this Government took office in 1979; the abolition of both the investment income surcharge and the national insurance surcharge; the capital taxation changes; the proposed reform of the capital gains tax retirement relief; and the national insurance contribution changes such as the reduction in class 2 contributions and the giving of relief on one-half of the class 4 contributions. Those have to be put in context because those last two changes in class 2 and class 4 are worth £155 million to the unincorporated sector in a full year.
The changes to the main allowances for machinery and plant and for industrial buildings were made last year. At the same time, we announced our intention to make changes this year to other allowances, including the agricultural buildings allowance. When all these changes are in place, the capital allowance system will generally be much more streamlined than before 1984; most assets qualifying for relief will attract allowances either at 25 per

cent. on a reducing balance basis if they are machinery or plant, or at 4 per cent. on a straight line basis if they are buildings.
The proposed changes to the agricultural buildings allowance in this year's Finance Bill have to be seen therefore as a part of this pattern of reform. The rate of allowance for expenditure which qualifies for relief will become 4 per cent. straight line so that agricultural buildings will be treated in the same way as industrial buildings from 1 April next year, thus bringing to an end the present distortion between them in the tax system. I stress the word distortion because, before this change, industrial buildings were on a slightly better system than agricultural buildings. Both will now be on a 25 year or a 4 per cent. straight line. Industrial buildings move from six years to 25 and agricultural buildings from approximately eight years to 25.
Many buildings qualifying for the agricultural buildings allowance have long life spans so that for them relief for construction costs over a 25-year period—which is what an annual allowance of 4 per cent. straight line means — will represent a reasonable rate of relief for tax. However, I recognise, as right hon. and hon. Members have said, that this is not the whole story.
11.15 pm
Some specialist agricultural buildings, such as some kinds of farrowing houses used in pig breeding, are regarded in entirety as machinery or plant rather than "buildings" so that the entire cost qualifies at machinery and plant rates of allowance — 25 per cent. on a reducing balance basis. This writes off their cost for tax to a residual 10 per cent. over eight years. In other buildings, such as milking parlours and glasshouses, a significant part of the cost of the building may be attributed to fixtures which are also treated as machinery or plant. In either case, the building or part of it could also benefit from the new rules for short-life assets which are being introduced by clause 55, as the right hon. Member for South Down appreciates.
It has been put to us that some modern purpose-built agricultural buildings do not qualify as machinery or plant and have working lives that are very much shorter than the average. For these buildings, it is said, an annual allowance of 4 per cent. on a straight line basis is unfair; and the unfairness — this is an important point — is compounded by the absence of rules which would at least permit balancing allowances to be made when the building is sold or scrapped.
We recognise the strength of this argument. It is indeed an unusual feature of the agricultural buildings allowance that as the rules now stand, and unlike the industrial buildings allowance, balancing adjustments on the sale or destruction of an agricultural building are not possible. This has always been the case but the matter naturally assumes greater importance against the background of a longer writing-off period for tax.
Accordingly we have already set in hand a detailed review of the present agricultural buildings allowance rules so that we can consider the most appropriate ways in which the code might be restructured. How to introduce a system of balancing adjustments will be central to that review.
I know that the right hon. Member for South Down, his colleagues and my hon. Friend the Member for Tatton (Mr. Hamilton) will be pleased when I say that it is our


intention to include proposals for restructuring the allowance, to include balancing adjustments in next year's Finance Bill, with a starting date of 1 April 1986 to coincide with the date on which the annual allowance becomes 4 per cent. I shall consider carefully the particular points that have been made in the debate.
The effect of these three amendments would be to put back the starting date for the new rate of allowance by three years either for all taxpayers — incorporated and unincorporated alike — or, alternatively, possibly only for the unincorporated. It is not absolutely clear from the way in which the amendments are drafted whether they are intended to stand as a whole or whether they are alternatives.
A deferral of the new rates of agricultural buildings allowance for all taxpayers, that is companies, partnerships and individuals alike, would clearly be welcomed by those likely to benefit. However, such a deferral would be difficult both to explain and to justify to taxpayers whose capital investment is in other types of buildings such as industrial structures and hotels, for which initial allowances will have been phased out by 1 April 1986 and which will thereafter attract only the same annual allowance — 4 per cent. — as is proposed for agricultural buildings. Equally the changes to the allowances for plant and machinery, which we are making over a three-year period, will be completed next April.

Mr. Teddy Taylor: As my hon. Friend has made a significant concession for next year for shorter life agricultural buildings, does he plan any comparable concession for short-life buildings in any other industries, particularly bearing in mind that agricultural buildings are the only ones that do not bear any rate liability?

Mr. Moore: My hon. Friend misunderstood. I was drawing attention to the absence under the present agricultural buildings allowance system of a set of balancing charges, in contradistinction to the existing balancing charges on industrial buildings.
What I was saying was that the agricultural building allowances being put on all fours merited clear consideration in advance of the review, and it seemed to me to be right that that be included in the changes taking place next year. They will not be treated advantageously in relation to industrial buildings. It would give them the same opportunity, because obviously the relevance of the change from eight to 25 years is significant in the need for such buildings to have such balancing charges.
If, on the other hand, what is intended in the alternative is a deferral for income taxpayers only — and this was raised by my hon. Friend the Member for Tatton—it is difficult to see how the exclusion of company taxpayers from such a deferral can be justified. The case for a general reform of the capital allowances which we explained in detail to the House last year — in essence making the commercial assessment of business investment more important than the tax assessment — is as valid for the unincorporated sector as it is for the incorporated. While it is true that rates of income tax are not being reduced in the same way as rates of corporation tax, we have taken a significant number of important steps to help the self-employed, some of which I have already mentioned.
Farmers carrying on their businesses as individuals or in partnership would benefit, as would the private

landowner who invests capital in buildings on agricultural or forestry land. But companies carry on similar activities and also claim the agricultural buildings allowance and would have every right to feel unfairly treated.
We have looked at the matter most carefully in the light of the comments and other representations which we have received since our intentions were announced last year. We think it right, however, to proceed as planned and, in this year's Finance Bill, bring the rate of this allowance into line with the other buildings allowance with effect from 1 April next year. At the same time, we also think it right to proceed with a thorough examination of the structure of the agricultural buildings allowance so that changes which bring the rules of the present allowance also more into line with the other buildings allowances and, in particular, provide for balancing adjustments, may be introduced in next year's Bill. On that basis I urge the right hon. Gentleman to withdraw his amendment. I hope he understands the points I have made.

Mr. J. Enoch Powell: It was certainly necessary that the impact of these changes upon the agricultural industry, and particularly upon some parts of it, should hake been openly debated during the debate on this Finance Bill, especially as that did not happen at the Committee stage. I recognise that the form of the amendments, framed to raise the whole question, was not in itself wholly satisfactory, partly because it went for a deferment rather than for any other remedy, and also because it was unable to distinguish between one section of the industry and another. For instance, it does not distinguish between the incorporated and the non-company sector of the industry.
The result has been that it has drawn from the Government not only a recognition of the problems which the industry undergoes in making the transition from one approach to another, to capital allowances and capital taxation, but also the important statement that the Minister has made about the review of balancing charges in the context of agricultural buildings. That has been more than sufficient to justify the debate. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 61

ALLOWANCES FOR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH

Amendment made: No. 42, in page 58, line 8, leave out `a building' and insert 'or of machinery or plant which forms part of a building or other structure'.—[Mr. Ian Stewart.]

Clause 65

MODIFICATION OF INDEXATION ALLOWANCE

Amendment made: No. 43, in page 62, line 10, leave out from 'Act' to 'on' and insert—

(a) shall not have effect with respect to disposals of gilt-edged securities as defined in Schedule 2 to the Capital Gains Tax Act 1979 or qualifying corporate bonds as defined in section 64 of the Finance Act 1984; and
(b) shall have effect with respect to disposals of other securities.'.—[Mr. Ian Stewart.]

Mr. Ian Stewart: I beg to move amendment No. 131, in page 62, line 19, leave out 'and'.

Mr. Deputy Speaker: With this it will be convenient also to take Government amendments Nos. 132 and 133.

Dr. McDonald: I intend to speak mainly to the amendments which have been grouped with amendment No. 131. The amendments were tabled on 4 July—only last Thursday — and that in itself is extremely interesting.

Dr. Marek: The Minister has chosen a rather sly way of getting out of defending his amendments. Amendment No. 131 is rather trivial, but No. 133 is a substantive amendment. I had expected the hon. Gentleman to tell us about its effect before we discussed it.

Dr. McDonald: I am grateful to my hon. Friend. That is why I wanted to make it clear that I intended to discuss the whole of the Chairman's selection. The amendments were tabled quite recently, and that is interesting, because they make significant changes in the capital gains tax regime.
Companies were able to pool their shares — indeed, they still are — and under the pooling arrangements all purchases of shares in other companies were pooled to produce an average acquisition cost. If, for example, we talk about Fred Bloggs Investments Ltd. and assume that 1,000 ICI shares were bought at £1 each in 1967 and another 1,000 at £10 each in 1984, the acquisition cost under the pooling arrangements could be averaged out at £5·50.
This group of amendments allows companies to have a choice. Companies will be able to revoke the pooling election — formerly, companies preferred that, even though it might have meant that they paid more tax, because it simplified book keeping arrangements. The reason why they might want to revoke the pooling election, despite the administrative convenience and so on, is that they can go for a last in, first out arrangement under later amendments, in which case they will be able to sell off the most expensive shares first.
This group of amendments seems enormously to advantage companies in terms of capital gains tax, and they have been tabled rather late in the day. We know from the Red Book that the Government expected to get £720 million from capital gains tax this year. If these changes are advantageous to companies in the way in which I have described, that amount could well be reduced, and we want to know how much these changes will cost and why the Government have introduced them at this late stage.
I repeat that the amendments were tabled on 4 July. Why were we not given an opportunity to discuss them in Committee, when we would have had tine to consider them in great detail, instead of having to discuss what seem to be quite significant changes at half-past 11 at night?
It will be interesting to hear the Minister's answers to all these questions.

Mr. Ian Stewart: I am happy to respond to the hon. Lady. The only reason why I did not deal with the amendments at greater length was that she had told me beforehand that she wanted to raise a number of questions and it seemed more sensible to explain the amendments in more detail after she had spoken.
The substance of the changes recently announced come in a later group of amendments, Government amendments

165 to 168, which I am not dealing with now but which my right hon. and learned Friend the Chief Secretary will deal with in a moment.
Government amendments Nos. 131 to 135 deal with the technical side of the implementation. They involve additional parts of the schedule, which deal with two aspects of the reforms, and they were not included in the Bill so that discussions could take place with the representative bodies of those concerned. The first part of the two provisions relates to the rule for parallel pooling, which was introduced for companies in 1983 to facilitate the application of computer programmes to large portfolios. The way in which the companies now hold their portfolios under those arrangements are not in a form to which the new arrangements could be applied.
11.30 pm
As the hon. Lady knows, the system of parallel pooling involves two pools — one with the actual cost, and the other with the index cost. The comparison between the two will enable the indexed gain to be calculated. The new system, which could be called consecutive pooling, will have a pool of pre-1982 holdings and one of post-1982 holdings. They will be updated for each transaction. Two provisions are being introduced to meet that.
The first provision will allow those who have elected for parallel pooling to revoke that election, and we understand that most companies would wish to do that. For those who do not, a statutory instrument will be issued detailing how the parallel pools can be converted into the correct form. We shall have further discussions of the details with those concerned.
The second provision relates to the application of the new indexation provisions to underwriters' premiums trust funds. Hitherto, because indexation has not applied to the first 12 months of any asset holding, indexation relief has not been due on the premiums trust fund. Under the special statutory provisions the securities in those trust funds are treated as disposed of and reacquired at the end of each calendar year accounting period. Now that the indexation provisions apply to the first year of ownership, the amendment secures that with the necessary modifications, indexation relief could be given in calculating the gains arising on the assets in those trust funds.
The provisions are purely technical, and I commend them to the House.

Dr. McDonald: The Economic Secretary referred to discussions with the representative bodies of those concerned. He should tell the House exactly who he means by that. I notice that he has still not answered the question about costs.

Mr. Stewart: There is no cost involved in the implementation of the arrangements. Those concerned are mostly insurance companies and large companies which hold pools of investment shares. Further discussion is needed because the arrangements for the new consecutive pooling involve changes in computer arrangements. As soon as that has been sorted out with the companies, the provisions can be published in a statutory instrument.

Dr. McDonald: The Economic Secretary has still not named the bodies with whom discussions took place, and we want those names. Secondly, is he saying that the changes have no revenue impact? I remind the House that the amendments must ultimately be linked with


amendments Nos. 165 to 168. Therefore, what is the revenue impact of the changes together with the later amendments?

Mr. Stewart: I have already explained that discussions took place with insurance companies and most of the life offices associations. The cost of the changes does not arise on these technical arrangements. My right hon. and learned Friend the Chief Secretary, who will deal with Government amendments Nos. 165 to 168, which are the substantive ones, will answer questions about the substantive changes. These are technical, not substantive provisions.

Amendment agreed to.

Amendment made: No. 132, in page 62, line 22, at end insert—

`(d) Part V has effect with respect to securities in respect of which elections have been or could be made under Schedule 6 to the Finance Act 1983; and
(e) Part VI contains consequential provisions relating to assets forming part of a premiums trust fund'.— [Mr. Ian Stewart.]

Sir William Clark: I beg to move amendment No. 156, in page 62, line 31, at end insert—
'(4A) In applying subsection (4) above if the asset is disposed of by a company B to whom it was transferred directly or indirectly by another company A, within section 273 Taxes Act 1970, then if A held the asset at 31st March 1982 B shall be entitled to be treated as if it B had held the asset at 31st March 1982.'.

Mr. Deputy Speaker: With this it well be convenient to discuss Government amendment No. 130.

Sir William Clark: The House will recollect that where a person disposes of shares after April 1985, indexation will start from April 1982 under the new indexation rules. The amendment relates to indexation only and has nothing to do with the eventual capital gain on the share or asset.
Sometimes assets are transferred within a group of companies and the purpose of the amendment is to allow the asset, wherever it is in the group, to enjoy indexation. The amendment is simpler than Government amendment No. 130 and it is unusual for a Back Bench Member to move an amendment and to have the Government tagging on behind. However, I am grateful to my right hon. and learned Friend the Chief Secretary to the Treasury for taking the point. The Government's amendment is more complicated but it deals with the problem more comprehensively, which I welcome.

Mr. Peter Rees: My hon. Friend the Member for Croydon, South (Sir W. Clark) has identified a problem and he and my hon. Friend the Member for Tatton (Mr. Hamilton) have sought to meet it by means of the amendment. Government amendment No. 130 identifies the problem and goes slightly wider in tackling it.
My hon. Friend the Member for Croydon, South has referred to transfers within a group of companies, but there are other no-gain, no-loss transfers where the same problems arise. These include company reconstructions or amalgamations and transfers between husband and wife. There are such arcane matters as transfers by the marketing board that deals with hops. The House will be moved when it hears that the problem can arise for a local constituency association after a redrawing of boundaries.
I pay tribute to my hon Friends the Members for Croydon, South and for Tatton for having identified the problem in their amendment but I hope that they and the

House will feel, on reflection, that it is better that it should be dealt with comprehensively, which is the purpose and intention of the Government amendment.

Dr. McDonald: The Chief Secretary has rightly said that Government amendment No. 130 goes wider than amendment No. 156. The hon. Member for Croydon, South (Sir W. Clark) has suggested that the amendment has nothing to do with indexation but I shall describe the effect of the amendment as I understand it. If a group of companies can switch assets around within the group it will not pay capital gains lax. However, when the last company in the group sells the asset outside the group, the acquisition cost will be the cost to the first company in the group. If the amendment were accepted, the last company in the group would be able to claim the indexation allowance against the cost to the first company which bought the shares or asset. We see no reason for agreeing to such an amendment.
The Chief Secretary will remember that when we discussed the abolition of stamp duty on voluntary dispositions in Committee we emphasised how the Government have been busily dismantling capital transfer tax. Indeed, that had been done to such an extent that the Institute of Fiscal Studies — which, as hon. Members know, is an independent research group — produced an article in August last year entitled "CTT Adieu", and that would be even more true of this year's Finance Bill. When we were discussing that, my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) pointed out that one way of avoiding what remains of the CTT charge is to make lifetime gifts, and that the Government have made this easier by the introduction of the CGT holdover relief.
If a rich man gives some shares to his son in 1985, the object being to reduce his eventual CTT liability, and they make a CGT holdover election, no charge to CGT will arise, but the son will be deemed to have acquired the shares at the price originally paid by the father. The effect of amendment No. 130, in terms of that example, is to allow the son, when he sells the shares, to claim indexation allowances calculated from the time when the father paid the shares, or from 1982, if that was later.
Given that example, which seems to follow from the Government tabling amendment No. 130, how much will it cost and how many people will benefit from that kind of change? We have figures of the number of capital gains tax payers with whom the Inland Revenue deals. I am here referring to individuals and not, of course, to companies. How many rich individuals are likely to benefit from that kind of change, and how much will it cost? What possible justification have the Government for introducing such an amendment? Why is it that at this stage in the Finance Bill the Government appear to be introducing a series of amendments to capital gains tax which, if taken together—we cannot, of course, discus them in total—seem to lighten the burden of capital gains tax still further?

Sir William Clark: The Chief Secretary is right in saying that the Government's amendment is far wider and far more equitable than the one tabled by my hon. Friend the Member for Tatton (Mr. Hamilton) and myself. In view of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 130, in page 63, line 4, at end insert—


`(6A) Subsection (6B) below applies to a disposal of an asset which is not a no gain/no loss disposal, if—

(a) the person making the disposal acquired the asset after 31st March 1982; and
(b) the disposal by which he acquired the asset and any previous disposal of the asset after 31st March 1982 was a no gain/no loss disposal;

and for the purposes of this subsection a no gain/no loss disposal is one on which, by virtue of section 267 or section 273 of the Taxes Act, section 44 of the Capital Gains Tax Act 1979, section 148 of the Finance Act 1982 or section 7(4) of the Finance (No. 2) Act 1983, neither a gain nor a loss accrues to the person making the disposal.
(6B) Where this subsection applies to a disposal—

(a) the person making the disposal shall be treated for the purpose referred to in subsection (4) above as having held the asset on 31st March 1982; and
(b) for the purpose of determining any gain or loss on the disposal, the consideration which, apart from this subsection, that person would be treated as having given for the asset shall be taken to be reduced by deducting therefrom any indexation allowance brought into account by virtue of Part I of Schedule 13 to the Finance Act 1982 on any disposal falling within subsection (6A)(b) above.'.

No. 44, in page 63, line 7, leave out from 'include' to 'relevant' in line 8.—Mr. Peter Rees.]

Schedule 17

INDEXATION

Amendment proposed: No. 164, in page 152, line 11, leave out 'following that'.—[Mr. Peter Rees.]

Mr. Deputy Speaker: With this it will be convenient to take the following amendments:
Government amendments Nos. 165 to 167.
No. 169, in page 159, line 11, leave out from 'a' to 'of' in line 13 and insert
'new holding, within the meaning of Part III of this Schedule rather than with securities forming part of a 1982 holding, within the meaning of Part II'.
and Government Amendment No. 168.

Dr. McDonald: I am glad to have the opportunity to speak to amendment No. 164. I noticed that the Chief Secretary carefully avoided answering any of the questions which were raised on the last group of amendments, so some of the same questions have to be pressed on this group of amendments. This group—I refer particularly to Government amendments Nos. 164 to 168 — were tabled even later than the ones that we have already debated. They were tabled on Monday, 8 July — very late indeed—and they constitute a change in the Finance Bill as originally published. The amendments alter the arrangements that were made for the basis of indexation of capital gains tax. It shows that the Government changed their minds at a very late stage between publication of the original Bill and these amendments. Instead of basing the indexation of a group of shares or assets on the principle of first in, first out, the Government have substituted the principle of last in, first out, thus reducing the liability to capital gains tax.
11.45 pm
For example, under the original Finance Bill, shares were to be identified on a first in, first out, basis. The amendments change the rules to a last in, first out basis. Almost always this will benefit the taxpayer. If, to use again the example of Mr. Jones, he bought 1,000 ICI

shares in 1975 at £5 each— £5,000 — and 1.000 ICI shares in 1983 at £10 each — £10,000 — and if he sold 1,000 ICI shares in 1985 at £12 each he gained £12,000. On the first in, first out basis he gains £12,000 less £5,000. The basis for tax liability is £7,000. On the last in, first out basis he gains £12,000, less £10,000. The basis for tax liability is therefore £2,000.
We want to know why the Government changed their mind. At the last moment did they decide to cave in to their City friends and change the basis? How much will this cost? How can the Government justify such a cost when they were unable last night to find the quite small amount of money that would be necessary to alter the tax regime that they now wish to impose upon the workplace nurseries?
The Chief Secretary to the Treasury is on record as saying that he is opposed to capital taxation. He has been unable to abolish it. Instead, the process of reducing it goes on year after year. This is another example, which was introduced at a very late stage. Both he and his right hon. Friends chip away at capital taxation until it is hardly worth collecting. Instead of death for capital taxation by a thousand cuts it is death by a thousand reliefs. I am sure that the Chief Secretary is pleased about that. The Opposition are not at all pleased about it.
We do not think that there should be this imbalance, which we have commented upon time and time again, between the burden of taxation on capital and the burden of taxation on taxpayers, especially those whose incomes are particularly low. The burden of taxation on those with below average incomes has increased during the last six years, while the burden of capital taxation has decreased. Capital gains tax has dropped to less than 1 per cent. of total revenue. One concession after another has been made. This set of concessions has been made at an extremely late stage. The result will be that only the rich will benefit. We want the Chief Secretary to tell us how many people are involved, how much it will cost and what justification can possibly be produced for caving in to the City.

Mr. Anthony Beaumont-Dark: The hon. Member for Thurrock (Dr. McDonald) accuses the Government of having caved in to their rich friends. I tabled an amendment on this matter and the hon. Lady may be right to say that the Government amendments, which I regard as being as satisfactory as mine, were tabled late in the day. The difficulty is that capital gains tax is so complicated that it takes time to work out the problems involved.
We are seeking to help not a few rich individuals, but the insurance companies, life offices, investment trusts and trade union pension funds in the City that all have large core holdings. If we had left the situation as it was, there would have been an aggregation of costs and profits and, under the FIFO method, £200,000 of capital gains tax could be paid when no overall capital gain had been made. Therefore, the funds of pension funds would have been diminished.
In addition, once an investment company had bought a holding it would never wish to deal in the share, because there would be a financial distortion. Surely it is good for the country that the change has been made. Eating up in tax the benefits going to trade union pension funds and others would have been a great folly. The country is not the net loser. The losers would have been the beneficiaries


of funds; they are not a few rich individuals, but hundreds of thousands of people who get the benefit of expert advice.
The Government should be congratulated on seeing the wisdom of the argument, not criticised for changing what would have been a damaging provision.

Mr. Peter Rees: We have been congratulated by one side of the House and condemned by the other. It would be wearisome if I deployed at length the Government's views on capital taxation, but the hollowness of the case of the hon. Member for Thurrock (Dr. McDonald) was demonstrated when she talked of death by a thousand reliefs; I have never heard of anyone dying from an excess of reliefs.
We are people of warm hearts who are endeavouring to do justice in a complex matter. The hon. Member for Thurrock does not recognise that, with the impact of inflation over the years, capital gains tax has become, to a considerable extent, a capital levy. It has not been creaming off real profits. All too often, it has been cutting into the core holdings of institutions.
I emphasise that the change does not benefit what the hon. Member for Thurrock chooses to call the rich friends of the Tory party. It covers the institutions, through which many of our fellow countrymen who could never be described as rich save for themselves, their families and their old age.
The change was pressed on us between the Committee and Report stages. I do not apologise for the fact that we had to table the amendments rather late. They include complex provisions and it was necessary to work out the details and get them right. The justification for our proposals was clearly deployed by my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark).
The Bill originally included the first in, first out rule, which was the general identification rule from 1965 to 1982. We thought that as people were familiar with the admittedly slightly complex rule, it was worth perpetuating it in the new situation created by the indexation provisions in the Bill. However, it was represented very strongly to us at the end of the Committee debate that this would create a distortion in the operations not just of private individuals but of institutions. It would provide, so to speak, a clog on the market. People would be disinclined to have their stocks and shares turned over in the way that market circumstances would normally have dictated. We thought it right, therefore, to eliminate that distortion by introducing the last in, first out rule.
The hon. Member for Thurrock asked me perfectly properly how many people will be affected. I cannot tell her. [Interruption.] We all know the bonhomie of the hon. Member for Workington (Mr. Campbell-Savours). The hon. Gentleman might reflect on the utter impossibility of knowing the composition of the portfolios of the institutions of the country, let alone of individuals. If he and the hon. Member for Thurrock reflected for a moment, they would recognise the utter impossibility of my giving the numbers likely to be affected.

Mr. Campbell-Savours: What about last year's bond washing.

Mr. Peter Rees: I think that I would be out of order if I were to debate bond washing. The hon. Gentleman, who intervenes regularly from a sedentary position, might

recognise that this year the Government have devoted considerable legislative time — with, I had hoped, the approval of the Opposition — to bringing bond washing with the charge to tax. I should have thought that the hon. Gentleman might recongise that fact, but maybe he has his own motives for contributing in his own particular way.
The hon. Member for Thurrock, again properly, asked me what the cost would be. Once more, it is impossible for me to say, but it is likely to be negligible. It is likely that there will be more disposals although, because of the indexation provisions and the application of the last in, first out rule, the charge on each disposal is likely to be less. However, as there will probably be a larger number of transactions, the ultimate overall quantum of capital gains tax should be about the same. I have to admit quite candidly that that it is absolute assumption. It is, I hope, an informed guess.
I apologise for not having dealt with that point in the last case. Again, it would have been impossible for me to put forward a figure because the basic data are not available — that is, the number of transactions which have been on the no gain, no loss basis which would have preceded the ultimate transaction, subject to capital gains tax. Much as I would have liked to give the figure, it would not have been realistic for me to do so.
In this case, as I said — and I am sure that the hon. Lady will understand how I have approached the problem — there is likely to be a greater turnover of the securities, but, admittedly, at a lesser charge to capital gains tax, to corporation tax or chargeable gains. None the less, I hope that the actual amount of revenue collected by Government would not be seriously affected. I therefore hope that the House will feel able to accept the amendments.
If I may deal briefly with amendment 164, which is of a slightly different quality, this is a technical amendment to bring the treatment of shares and other securities into line for the purposes of applying the 10-day rule. Due to slight drafting defects, some were on an 11-day basis and some on a 10-day basis, and the amendment is to harmonise them on a 10-day basis.
I hope that all the amendments will, therefore, find favour with the House.

Dr. McDonald: I should like to explain why the Opposition wish to call a vote on this amendment. The Chief Secretary says that these general identification rules have not been changed since 1965, yet inexplicably changes in the identification rules were introduced after the Bill was published on 8 July. The Chief Secretary has not told the House why that was done at such a late stage, from whom the representations came or how many individuals will be affected by the changes. The Inland Revenue, of course, knows how many individuals it deals with who have directly to pay capital gains tax. I take the Chief Secretary's point about the number of individuals who might indirectly be affected by the proposals.
Somewhat misleadingly, the Minister talked about institutions, but pension funds should be exempted. He said that the costs were negligible, but he does not know the cost of the changes.
The Government expect to gain £720 million from capital gains tax this year. The Opposition will watch closely to see how much the Government gain. Because of the lack of answers, the lateness of the changes and our


belief that rich people are likely to benefit more than the many whom we represent, we intend to vote against the amendment.

12 midnight

Mr. Tim Smith: I was surprised that the Government should introduce the amendment at such a late stage, but it is important to get the new arrangements for capital gains tax on to a sensible footing. The amendments fall into the same category as one which we discussed yesterday. Although a relief is being introduced, the revenue consequences might be neutral or even beneficial.
It has become clear that the market might become clogged up. Capital gains tax is only payable when an individual makes a disposal. On the basis of last in, first out, rather than first in, first out, there will be no inhibition, so the revenue effects will not be as dramatic as the hon. Member for Thurrock (Dr. McDonald) suggests.
The hon. Lady said that pension funds were exempt from capital gains tax. That is true, but the insurance companies were, understandably, particularly worried.
The revenue from the bond washing provisions is to be £300 million in a full year and insurance will have to stump up a large proportion of that.
The hon. Lady will know that the insurance companies will lose as a result of the change which the House approved yesterday — the abolition of the short-term capital gains tax on gilts — because they will no longer be able to set off their losses against their equity gains. It is right that the Government should examine, even at this late stage, the strong representations by insurance companies. I do not think that the effect will be as damaging as the hon. Lady suggests, so I support the changes.

Dr. Marek: We should vote against the amendment, because we have not had time to study the proposals. The insurance companies should have made their representations earlier so that the proposals could be discussed properly in Committee. It is important to vote on the issue.

Question put, That the amendment be made:—

The House divided: Ayes 114, Noes 23.

Division No. 270]
[12.02 am


AYES


Alexander, Richard
Clark, Sir W. (Croydon S)


Amess, David
Clegg, Sir Walter


Ancram, Michael
Cope, John


Ashby, David
Corrie, John


Aspinwall, Jack
Currie, Mrs Edwina


Atkins, Robert (South Ribble)
Dorrell, Stephen


Atkinson, David (B'm'th E)
Dover, Den


Baker, Nicholas (N Dorset)
du Cann, Rt Hon Sir Edward


Baldry, Tony
Durant, Tony


Batiste, Spencer
Edwards, Rt Hon N. (P'broke)


Beaumont-Dark, Anthony
Fenner, Mrs Peggy


Bellingham, Henry
Forman, Nigel


Boscawen, Hon Robert
Forth, Eric


Bottomley, Peter
Fraser, Peter (Angus East)


Bottomley, Mrs Virginia
Freeman, Roger


Bright, Graham
Gale, Roger


Brittan, Rt Hon Leon
Galley, Roy


Brooke, Hon Peter
Gardiner, George (Reigate)


Browne, John
Garel-Jones, Tristan


Butcher, John
Goodlad, Alastair


Butler, Hon Adam
Gow, Ian


Butterfill, John
Gregory, Conal


Carlisle, John (N Luton)
Griffiths, Peter (Portsm'th N)


Chalker, Mrs Lynda
Grist, Ian





Hamilton, Neil (Tatton)
Robinson, Mark (N port W)


Havers, Rt Hon Sir Michael
Roe, Mrs Marion


Hawksley, Warren
Shaw, Sir Michael (Scarb')


Hayhoe, Rt Hon Barney
Shepherd, Colin (Hereford)


Henderson, Barry
Smith, Tim (Beaconsfield)


Hirst, Michael
Soames, Hon Nicholas


Howarth, Alan (Stratf'd-on-A)
Speller, Tony


Howarth, Gerald (Cannock)
Spencer, Derek


Howell, Rt Hon D. (G'ldford)
Stern, Michael


Hunt, David (Wirral)
Stevens, Lewis (Nuneaton)


Jopling, Rt Hon Michael
Stevens, Martin (Fulham)


Lang, Ian
Stewart, Allan (Eastwood)


Lawson, Rt Hon Nigel
Stewart, Andrew (Sherwood)


Lilley, Peter
Stewart, Ian (N Hertf'dshire)


Lloyd, Ian (Havant)
Thompson, Donald (Calder V)


Lord, Michael
Thompson, Patrick (N'ich N)


McCurley, Mrs Anna
Thorne, Neil (Ilford S)


MacKay, John (Argyll &amp; Bute)
Tracey, Richard


Maclean, David John
Viggers, Peter


Major, John
Wakeham, Rt Hon John


Mather, Carol
Waldegrave, Hon William


Maude, Hon Francis
Walden, George


Maxwell-Hyslop, Robin
Walker, Cecil (Belfast N)


Merchant, Piers
Ward, John


Miller, Hal (B'grove)
Wardle, C. (Bexhill)


Moore, John
Warren, Kenneth


Murphy, Christopher
Wheeler, John


Nicholson, J.
Whitney, Raymond


Osborn, Sir John
Wilkinson, John


Pattie, Geoffrey
Wood, Timothy


Percival, Rt Hon Sir Ian
Young, Sir George (Acton)


Powell, Rt Hon J. E. (S Down)



Proctor, K. Harvey
Tellers for the Ayes:


Rees, Rt Hon Peter (Dover)
Mr. Tim Sainsbury and


Roberts, Wyn (Conwy)
Mr. Michael Neubert.


NOES


Barron, Kevin
McDonald, Dr Oonagh


Beith, A. J.
McKay, Allen (Penistone)


Bermingham, Gerald
McWilliam, John


Blair, Anthony
Maxton, John


Bruce, Malcolm
Parry, Robert


Cocks, Rt Hon M. (Bristol S.)
Penhaligon, David


Cook, Frank (Stockton North)
Prescott, John


Cowans, Harry
Randall, Stuart


Davis, Terry (B'ham, H'ge H'l)
Ross, Stephen (Isle of Wight)


Dixon, Donald



Evans, John (St. Helens N)
Tellers for the Noes:


Hogg, N. (C'nauld &amp; Kilsyth)
Mr. D. N. Campbell-Savours


Kirkwood, Archy
and Dr. John Marek.


Litherland, Robert

Question accordingly agreed to.

Amendments made: No. 79, in page 152, leave out line 17 and insert—
'(2) The following provisions of that section shall be omitted—

(a) in subsection (1), the words "and section 89 below" and "section 89 below"; and
(b) subsection (5A).'.

No. 80, in page 152, line 25, leave out from beginning to 'and' in line 26.

No. 81, in page 152, line 30, leave out 'In'.

No. 82, in page 152, line 31, leave out from beginning to end of line 4 on page 153 and insert `shall be omitted'.—[Mr. Peter Rees.]

Mr. Peter Rees: I beg to move amendment No. 134, in page 153, line 29, leave out `sub-paragraph (2)' and insert `sub-paragraphs (2) and (3)'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 135 and 136.

Mr. Rees: The purpose of the amendments is to allow taxpayers a fresh opportunity to elect to pool quoted


securities acquired before 6 April 1965 where they have not already done so. This should simplify the capital gains tax still further. I know that the hon. Member for Thurrock (Dr. McDonald) is interested in the questions of cost. The measure is unlikely to have any significance on tax liability. In most cases, the effect will be to spread the gains from pre-1965 securities over a greater number of disposals.

Amendment agreed to.

Amendments made: No. 135, in page 153, line 43, at end insert—
'(3) If a person so elects, quoted securities, as defined in paragraph 8 of Schedule 5 to the Capital Gains Tax Act 1979 (assets held on 6th April 1965) which are covered by the election—

(a) shall be treated as an accretion to an existing 1982 holding or, as the case may be, as constituting a new 1982 holding; and
(b) shall be excluded from paragraph 2 of that Schedule (restriction of gain or loss by reference to actual cost);

and the relevant allowable expenditure (as defined in relation to a disposal to which section 86 of the Finance Act 1982 applies) which is attributable to that 1982 holding shall be adjusted or determined accordingly.
(4) Paragraphs 4 to 8 of the said Schedule 5 (except paragraph 4(1) shall apply in relation to an election under sub-paragraph (3) above as they apply in relation to an election under paragraph 4 of that Schedule, but with the substitution for any reference to 19th March 1968 of a reference to 31st March 1985 in the case of holdings or disposals by companies and 5th April 1985 in any other case.'.
No. 136, in page 154, line 3, leave out 'where paragraph 6(2) above applies' and insert
'if it comes into being by virtue of paragraph 6 above'.—[Mr. Peter Rees.]

Mr. Peter Rees: I beg to move amendment No. 83, in page 155, line 3, leave out '6th April 1985' and insert 'the 1985 date'.

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 84 to 89.

Mr. Rees: These amendments make a number of technical drafting changes to the Bill. There is no change of substance.

Dr. McDonald: These amendments are rather more than technical changes. As we are aware, someone can buy a share option — the right to buy shares at a fixed price at some time in the future. The amendments provide an indexation allowance in addition. That will, of course, benefit financial dealers or rich individual investors. It benefits those who can adopt a highly speculative approach to buying shares. The Chief Secretary said that the cost is negligible. We are not convinced of that. He might like to reconsider that point and tell us what the cost will be and confirm that the provision will benefit the few people whom I have described.

Mr. Peter Rees: I cannot speculate about the wealth of the taxpayer whom the amendments might benefit. The hon. Member for Thurrock (Dr. McDonald) is correct when she says that they will enable expenditure upon acquiring a share to be indexed from the date upon which it is incurred, but that is the tenor of the provisions. I am afraid that that is as far as I can take the matter. I cannot calculate how much is involved because one has to make too many assumptions. The best evidence that I have is that it will be negligible.
Amendment agreed to.
Amendments made: No. 84, in page 155, line 12, leave out `6th April 1985' and insert 'the 1985 date'.
No. 85, in page 156, line 20, leave out 'and shall at that time' and insert
'or, if it is earlier, when any of the qualifying expenditure is incurred and shall at the time it comes into being'.
No. 86, in page 158, line 8, at end insert—
'(3) Notwithstanding anything in sub-paragraphs (1) and (2) above, the provisions of this Part of this Schedule do not apply to shares in respect of which relief under Part I of Schedule 5 to the Finance Act 1983 (relief for investment in corporate trades) has been given and not withdrawn.'.
No. 165, in page 158, line 17, leave out 'securities acquired' and insert
`disposals of securities on or'.
No. 166, in page 158, line 21, leave out '19(2)' and insert `19(3)'.
No. 87, in page 158, brie 26, after first 'and' insert `subsequently'.
No. 88, in page 158, line 32, leave out from 'then' to second 'the' in line 33 and insert
'subject to sub-paragraphs (1A) and (1B) below'.
No. 89, in page 158, line 36, at end insert—
`(1A) If, in a case falling within sub-paragraph (1) above, the number of securities acquired exceeds the number disposed of.—

(a) the excess shall be regarded as forming part of an existing new holding or, as the case may be, as constituting a new holding; and
(b) if the securities acquired were acquired at different times (within the ten days referred to in sub-paragraph (1) above) the securities disposed of shall be identified with securities acquired at an earlier time rather than with securities acquired at a later time.

(1B) If, in a case falling within sub-paragraph (1) above, the number of securities disposed of exceeds the number acquired, the excess shall be not identified in accordance with that sub-paragraph.'.
No. 167, in page 159, leave out lines 2 to 9 and insert
'forming part of a new holding, within the meaning of Part III of this Schedule, rather than with other securities'.
No. 168, in page 159, line 12, leave out from 'with' to end of line 13 and insert
'other securities and, subject to that, shall he identified with securities acquired at a later time rather than with securities acquired at an earlier time'.
No. 133, in page 159, line 13 at end insert—

'PART V

PARALLEL POOLING

20.—(1) Where an election has been made under Schedule 6 to the Finance Act 1983 (parallel pooling) that election may be revoked, by notice in writing to the inspector not later than 31st March 1987 or within such further time as the Board may allow.

(2) At the end of paragraph 2(2)(b) of the said Schedule 6 (elections to be irrevocable) there shall be added the words "except in accordance with Part V of Schedule 17 to the Finance Act 1985".

(3) All such adjustments shall be made, whether by way of discharge or repayment of tax, or the making of assessments or otherwise, as are required in consequence of a revocation under sub-paragraph (1) above.

21.—(1) An election under Schedule 6 of the Finance Act 1983 shall not have effect with respect to any disposal on or after 1st April 1985.

(2) The Treasury may by regulations make such provisions as are referred to in sub-paragraph (3) below in relation to qualifying securities, within the meaning of the said Schedule 6,—

(a) in respect of which an election under that Schedule has been made and not revoked under paragraph 20 above; and
(b) which, immediately before 1st April 1985, were regarded as indistinguishable parts of a single asset by virtue of paragraph 3 of chat Schedule.

(3) The provisions referred to in sub-paragraph (2) above are such as appear to the Treasury to be appropriate to enable section 65 of this Act and the preceding provisions of this Schedule to take full effect in relation to the securities concerned.

(4) Regulations under this paragraph shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

PART VI

UNDERWRITERS' PREMIUMS TRUST FUNDS

22. This Part of this Schedule has effect with respect to premiums trust funds, within the meaning of Schedule 16 to the Finance Act 1973 (underwriters), and any reference in paragraph 23 below to a fund is a reference to such a premiums trust fund.

23. — (1) Subject to the following provisions of this paragraph, the enactments relating to indexation shall apply with any necessary modifications in relation to assets forming part of a fund as they apply in relation to other assets.

(2) In this paragraph "the enactments relating to indexation" means—

(a) sections 86 to 88 of and Schedule 13 to the Finance Act 1982; and
(b) section 65 of this Act and Parts Ito III of this Schedule.

(3) For the purposes of the application of the enactments relating to indexation in accordance with sub-paragraph (1) above, it shall be assumed—

(a) that assets forming part of a fund are disposed of and immediately reacquired on the last day of each accounting period; and
(b) that the indexation allowance computed for that accounting period is allocated to the corresponding underwriting year in the same proportion as the gains or losses referred to in paragraph 6(2) of the said Schedule 16'.—[Mr. Peter Rees.]

Clause 66

RELIEF FOR DISPOSALS BY INDIVIDUALS ON RETIREMENT FROM FAMILY BUSINESS

Sir Edward du Cann: I beg to move amendment No. 45, in page 63, line 31, at end insert—
(2) Where an individual who is a partner with his spouse in a business has retired on ill health grounds below the age of 60, and his spouse is thereby compelled to withdraw from the business, such part of the spouse's gains on the withdrawal shall qualify for relief as appears to the Board to be just and reasonable.".
I express my gratitude to Mr. Speaker for selecting the amendment. He has a great and deserved reputation for solicitude for the position of Back Benchers and in selecting this amendment he has demonstrated that qualify yet again.
Any examination of Mr. Speaker's provisional selection of amendments indicates that a total of 120 amendments is to be discussed tonight. No fewer than 100 are Government amendments. Taking into account the amendments proposed by the official Opposition, that indicates very clearly that the result of our present arrangements for dealing with the Finance Bill each year inevitably tends to mean that the point of view of the Back Bencher is being increasingly crowded out. Remembering the undertakings given and the suggestions made in 1967, when our arrangements were changed and Standing Order No. 42 was altered, in particular the suggestion that a more careful examination of the Finance Bill would be possible, it has to be admitted that, in practice, the result has been thoroughly disappointing.
In recent years there has been a tendency to allow the general membership of the House of Commons, if anything, a lesser opportunity to discuss the Finance Bill in detail. It is nearly half past midnight and this is no time to examine statistics in any detail. Taking the first 10 years after the arrangements were changed and examining the number of days available for Report, there were in fact 11 Finance Bills. On six occasions three days were allowed, on two occasions four days, on another occasion two days and on two occasions only one day. The average number of days allowed was three. Since then the average has dropped dramatically to between one and two days.
I repeat that the net result is that the private Member is becoming increasing disfranchised when it comes to an opportunity to test an idea, to propose an amendment or a change, unless it attracts very widespread support. Remembering how unsatisfactory is the general shape of our Committee stage—because opinion is becoming, in my view, absurdly polarised between the parties—

Mr. Deputy Speaker: Order, I hope that the right hon. Gentleman will come to the amendment.

Sir Edward du Cann: I shall come to the amendment immediately, Mr. Deputy Speaker. I am merely saying that it is time that our arrangements for the examination of the Finance Bill were looked into.
There is a new principle in the Bill, in clause 66, which is very much to be welcomed. This allows retirement relief from capital gains tax to be claimed when an individual has to give up his business on grounds of ill health. That is a great step forward, but the arrangements as presently proposed involve a problem, which relates to a problem common in small businesses such as a farm or a shop where a husband and wife jointly own a property and run the business in partnership. If the business has to be sold owing to the ill health of the husband, his part of the gains would qualify for retirement relief, but there would be no relief for the wife's share.
I am advised by the National Farmers Union that it has already seen three cases of husband and wife partnerships, which are common in farming, where one spouse is having to give up on ill health grounds, and it is not practicable to continue the business as before. The matter came to my particular attention because I had a constituency case in a farm just outside Taunton, where a constituent found himself in real difficulties. His wife had had a severe stroke, and the medical report is that she will be unable to take any part in the business in future.
The amendment suggests a discretion to the Inland Revenue in such circumstances to allow reasonable relief to the other spouse. I cannot say whether the form of the amendment will be acceptable to my right hon. and learned Friend the Chief Secretary. To return to my first point, it is a pity that one has not had the chance in Committee to test that, so that there would be an opportunity, if the wording of the amendment is not suitable, to promote something better on Report. I hope that my right hon. and learned Friend will be able to say what his feeling is about the real problem that I have described. If he is unable to accept my wording, I hope that he will be able to suggest that next year my right hon. Friend the Chancellor will be able to introduce such an improvement to clause 66 that will help what is a real difficulty for a number of individuals.

Dr. McDonald: The Opposition are not unsympathetic to the purpose of the amendment. However, if the right hon. Member for Taunton (Sir E. du Cann) is willing to give the Inland Revenue such discretion, and if the Government are willing to accept it in the case of illness that the right hon. Gentleman so well described, could not the Inland Revenue be given the same kind of discretion to give tax relief on work-place nurseries for lone parents or low-paid workers?

Mr. Peter Rees: My right hon. Friend the Member for Taunton (Sir E. du Cann) has clearly identified a problem that I am sure commands sympathy from both sides of the House. It will reassure right hon. and hon. Gentlemen who spoke earlier and said that that was the only time that the particular problems of agriculture had become the subject of debate either in Committee or on Report. Here is a second occasion, although my right hon. Friend would say that the amendment is not confined to agriculture.
We view the problem with sympathy, but the amendment is not satisfactory. The unsatisfactory nature of it could not have been demonstrated more clearly than it was by the speech of the hon. Member for Thurrock (Dr. McDonald). I do not know whether that was her intention, but she demonstrated the inadvisability of giving the Inland Revenue a discretion which, to be fair to it, it would not want to exercise.
I hope that my right hon. Friend will accept what I have to say in the spirit in which it is offered. We should like to keep this problem under review.
I am sure that my right hon. Friend will accept that the precise form of his amendment would not meet the full circumstances of the case. He has, however, identified a problem which we should like to keep under review and I hope that we may come back to it, if not next year at least on some later occasion when we have better evidence about the scope of the problem and how best it should be tackled. I hope he feels that justice has been done to the case which he so ably advaced and he will not feel obliged to press his amendment to a Division.

Sir Edward du Cann: In the light of that very clear undertaking from my right hon. and learned Friend that he will be good enough to keep the matter under review, and that a remedy will be sought and introduced, I am happy to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 18

RETIREMENT RELIEF ETC.

Mr. Peter Rees: I beg to move amendment No. 91, in page 160, line 46, leave out 'date of the disposal' and insert
'end of the year of assessment in which the disposal occurred'.

Mr. Deputy Speaker (Mr. Harold Walker): With this we may discuss Government amendments Nos. 92, 93 and 95.

Mr. Rees: These amendments are designed to standardise the time limits for the making of claims to reliefs under schedule 18. Various other elections are provided for under that schedule. Both the claim and the elections will now require to be made within two years of the end of the year of assessment in which the event to

which the claim or election relates took place. This will simplify administration and I hope it will be welcomed in all parts of the House.
Amendment agreed to.
Amendments made: No. 92, in page 162, line 36, leave out 'disposal concerned' and insert
`end of the year of assessment in which the disposal occurred'.
No. 93, in page 166, line 38, leave out from 'than' to third 'the' in line 39 and insert
'two years after the end of the year of assessment in which the individual or the trustees received the capital distribution'.—[Mr. Peter Rees.]

Mr. Peter Rees: I beg to move amendment No. 94, in page 169, line 16, at end insert—
'(4) References in this paragraph to relief given under this Schedule include references to relief given under section 34 of the Finance Act 1965 or section 124 of the Capital Gains Tax Act 1979; and—

(a) in relation to relief given under either of those sections paragraph (b) of sub-paragraph (1) above shall have effect as if, for the words from "which was" onwards, there were substituted "made by the individual"; and
(b) in the application of sub-paragraph (3) above where the earlier disposal was a disposal in respect of which relief was given under either of those sections, the reference in paragraph (a) to the qualifying period appropriate to the disposal is a reference,—

(i) if the disposal took place on or before 11th April 1978, to the period of ten years ending with the disposal; and
(ii) in any other case, to the qualifying period within the meaning of the section in question.'

Mr. Deputy Speaker: We shall take with this Government amendment No. 96.

Mr. Peter Rees: This amendment takes care of a transitional point which I say candidly we did not have time to prepare and put in for debate in Committee. Schedule 17 contains special rules for applying a ceiling to the amount of retirement relief available on a later disposal when some relief has already been given on an earlier one. The broad intention is to ensure that no individual can get more than die maximum relief, which is up to £100,000 throughout his life.
Amendment 96 is to ensure that a husband or wife who has been working in partnership or in a company and has received shares by way of gift or by inheritance, will get the full relief to which the donor spouse would have been entitled. That relief will be limited to £100,000. I hope that these two amendments will commend themselves to the House.
Amendment agreed to.
Amendments made: No. 95, in page 169, line 34, leave out from `(e)' to 'the' in line 35 and insert
`not later than two years after the end of the year of assessment in which the material disposal occurred'.
No. 96, in page 170, line 15, at end insert—
'(5) In sub-paragraph (4)(a) above, the reference to relief given under this Schedule includes a reference to relief given under section 34 of the Finance Act 1965 or section 124 of the Capital Gains Tax Act 1979'.—[Mr. Peter Rees.]

Clause 68

ASSETS DISPOSED OF IN A SERIES OF TRANSACTIONS

Mr. Michael Stern: I beg to move amendment No. 46, in page 71, line 35, leave out from 'them' to end of line 36.
The purpose of this amendment is to remove from the draft legislation words which are at best unnecessary and at worst confusing. The substance of the amendment was discussed in Committee and I commend it to the House.

Mr. Peter Rees: I fully agree with my hon. Friend. The amendment was ventilated in Committee and I agree with his analysis. The words are unnecessary and could lead to uncertainty. I am happy to recommend to the House that the amendment should be accepted.

Amendment agreed to.

Clause 71

TREATMENT OF DEEMED SUMS AND RELIEFS

Amendment made: No. 47, in page 75, line 8, leave out second 'as'.—[Mr. Peter Rees.]

Clause 72

EXCEPTIONS FROM PROCEDING PROVISIONS

Amendments made: No. 48, in page 76, line 26, after `period,' insert—

`(ee)the transferor is not ordinarily resident in the United Kingdom during the chargeable period in which the transfer occurs and, if he became entitled in the period to any interest on the securities transferred, it would not be liable to income tax by virtue of section 99 of the Taxes Act (securities free of income tax for residents abroad),
(eee) the securities transferred are FOTRA securities, the transferor is not domiciled in the United Kingdom at any time in the chargeable period in which the transfer occurs, and he is either not ordinarily resident in the United Kingdom during that period or a non-resident United Kingdom trader in that period,'.

No. 49, in page 76, line 40, after `(e)' insert', (ee), (eee)'.—[Mr. Peter Rees.]

No. 50, in page 77, line 22, at end insert—
'(6) For the purposes of this section "FOTRA securities" means securities issued with the condition mentioned in section 22(1) of the Finance (No. 2) Act 1931 (securities free of tax for residents abroad) as modified by virtue of section 60(1) of the Finance Act 1940.'.—[Mr. Peter Rees.]

Clause 73

DEEMED INTEREST

Amendment made: No. 126, in page 77, line 25, leave out
'28th February 1985 and 27th February 1986'
and insert 'certain dates'. —[Mr. Peter Rees.]

Schedule 20

DEEMED INTEREST ON CERTAIN SECURITIES

Amendments made: No. 97, in page 175, line 3, at end insert—
'(2A) For the purposes of this Schedule a person is to be treated as not entitled to securities if he is not ordinarily resident in the United Kingdom during the year and, if he became entitled in the year to any interest on the securities, it would not be liable to income tax by virtue of section 99 of the Taxes Act (securities free of income tax for residents abroad).
(2B) For the purposes of this Schedule a person who is not domiciled in the United Kingdom at any time in the year, and is either not ordinarily resident in the United Kingdom during the

year or a non-resident United Kingdom trader in the year, is to be treated as not entitled to securities which are FOTRA securities.'

No. 98, in page 175, line 36, at end insert—
'(10) For the purposes of this paragraph "FOTRA securities" mean securities issued with the condition mentioned in section 22(1) of the Finance (No. 2) Act 1931 (securities free of tax for residents abroad) as modified by virtue of section 60(1) of the Finance Act 1940.'.

No. 127, in page 175, line 40, leave out 'him' and insert 'the person'.—[Mr. Peter Rees.]

Schedule 21

SECURITIES: FURTHER PROVISIONS

Amendments made: No. 99, in page 178, line 5, at end insert—
'(10) Where, in Scotland, two or more persons carry on a trade or business in partnership, any partnership dealings shall be treated as dealings by the partners and not by the firm as such and the partners as being entitled to securities held by the firm.'.

No. 124, in page 178, line 21, after 'months', insert '(a long period)'.

No. 21, in page 178, line 39, leave out sub-paragraph (7) and (8) and insert—
'(7) In the case of a period which is an interest period by virtue only of sub-paragraph (4) above or paragraph 18F(3) below—

(a) the interest applicable to securities for the period is the interest payable on them on the interest payment day with which the long or straddling period concerned ends, and
(b) section 70(8) of this Act shall have effect as if the references to the period were to the long or straddling period concerned.'

No. 100, in page 179, line 27, after '12', insert 12A'.

No. 101, in page 181, line 4, at end insert—
'8A. —(1) Sub-paragraph (2) below applies where—

(a) a trustee of a settlementis treated as receiving annual profits or gains under section 71(2) of this Act, or
(b) a trustee of a settlement who is resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls would, at the end of the interest period, have been treated under section 71(2) of this Act as receiving annual profits or gains or annual profits or gains of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period.

(2) Chapters II to IV of Part XVI of the Taxes Act (settlements) shall have effect as if the amount which the trustee is or would be treated as receiving were income (withing Chapter II) or income arising under the settlement (within Chapter III or IV).
(3) Sub-paragraph (4) below applies where income of a trustee of a settlement who is resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls consists of interest which falls due at the end of the interest period and which would have been treated under section 71(5) of this Act as reduced by an allowance or an allowance of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period.
(4) For the purposes of Chapters II of Part XVI of the Taxes Act, the interest shall be treated as being reduced by the amount of the allowance or by the additional amount (as the case may be).
(5) In this paragraph—

(a) "settlement" means settlement within the meaning of Chapter II, III or IV of Part XVI of the Taxes Act (as the case may be), and
(b) references to a trustee of a settlement are, where there is no trustee of the settlement, to any person entitled to securities comprised in the settlement.'

No. 102, in page 183, line 45, at end insert—

'Conversions

12A. — (1) Where there is a conversion of securities the person who was entitled to them immediately before the


conversion shall be treated for the purposes of this Chapter as transferring them on the day of the conversion (if there is no actual transfer).

(2) The transfer shall be treated as made with accrued interest if the person was entitled to receive in respect of the securities interest payable on—

(a) the day of the conversion, if that is an interest payment day, or
(b) the next (or first) interest payment day to fall after the day of the conversion, in any other case,

and they shall be treated as transferred without accrued interest if he was not so entitled.

(3) For the purposes of this Chapter the interest period in which the conversion is made shall be treated as ending on the day on which it would have ended had the conversion not been made.

(4) In this paragraph "conversion" means conversion within the meaning of section 82 of the Capital Gains Tax Act 1979.'.

No. 128, in page 186, line 33, at end insert—

'Underwriters

18A. In paragraphs 18B to 18H below "approved association of underwriters", "business" and "premiums trust fund" have the meanings given by paragraph 16(1) of Schedule 10 to the Taxes Act.

18B. An underwriting member of Lloyd's or of an approved association of underwriters shall be treated for the purposes of this Chapter as absolutely entitled as against the trustees to the securities forming part of his premiums trust fund, his special reserve fund (if any) and any other trust fund required or authorised by the rules of Lloyd's or the association in question, or required by the underwriting agent through whom his business or any part of it is carried on, to he kept in connection with the business.

18C. — (1) In relation to securities forming part of a premiums trust fund, any reference in Schedule 20 to this Act to a date in the first column in sub-paragraph (3) below shall be read as a reference to that opposite it in the second.

(2) Where securities are transferred by or to the trustees of a premiums trust fund, this Chapter (other than Schedule 20) shall be read in relation to the trustees as if any reference to a date in the first column in sub-paragraph (3) below were a reference to that opposite it in the second, but without being so read in relation to the transferee or transferor (unless in turn constituting trustees of such a fund).

(3) The dates are—


28th February 1982
1st January 1982


27th February 1985
31st December 1984


28th February 1985
1st January 1985


27th February 1986
31st December 1985


28th February 1986
1st January 1986.

18D.—(1) The securities forming part of a premiums trust fund at the beginning of 1st January 1986 or 1st January of any subsequent year shall be treated for the purposes of this Chapter as transferred on 1st January concerned to the trustees of the fund.

(2) In relation to such a transfer, the settlement day is the day preceding that of the transfer (notwithstanding paragraph 4 above).

(3) The securities shall be treated as transferred with accrued interest if the trustees are entitled to receive in respect of them interest payable on—

(a) the day of the transfer, if that is an interest payment day, or
(b) the next (or first) interest payment day to fall after that day, in any other case,

and they shall be treated as transferred without accrued interest if they are not so entitled.

(4) This paragraph does not apply as regards securities if the day preceding 1st January concerned is an interest payment day in relation to them.

18E.—(1) The securities forming part of a premiums trust fund at the end of 31st December 1986 or 31st December of any subsequent year shall be treated for the purposes of this Chapter as transferred on 31st December concerned by the trustees of the fund.

(2) In relation to such a transfer, the settlement day is the day of the transfer (notwithstanding paragraph 4 above).

(3) The securities shall be treated as transferred with accrued interest if the trustees were entitled to receive in respect of them

interest payable on the next (or first) interest payment day to fall after the day of the transfer, and they shall be treated as transferred without accrued interest if they were not so entitled.

(4) This paragraph does not apply as regards securities if 31st December concerned is an interest payment day in relation to them.

18F. — (1) Where securities are transferred by or to the trustees of a premium trust fund, this paragraph shall have effect in relation to the trustees, though not in relation to the transferee or transferor (unless in turn constituting trustees of such a fund).

(2) In this paragraph "straddling period" means a period which would (by virtue of paragraph 3(3) and (4) above and apart from this paragraph) be in relation to the securities an interest period beginning on or before and ending after 31st December 1986 or 31st December of any subsequent year.

(3) For the purposes of this Chapter a straddling period is not an interest period, but the following shall apply to it—

(a) the period beginning with the day on which the straddling period begins and ending with 31.st December concerned is an interest period, and
(b) the period beginning with the day following 31st December concerned and ending with the day with which the straddling period ends is an interest period.

18G. — (1) Paragraph 11 above does not apply where the individual concerned is an underwriting member of Lloyd's or of an approved association of underwriters and the securities concerned form part of a premiums trust fund, a special reserve fund or any other trust fund required or authorised by the rules of Lloyd's or the association in question, or required by the underwriting agent through whom the individual's business or any part of it is carried on, to be kept in connection with the business.

(2) In such a case the deceased's personal representatives shall be treated for the purposes of this Chapter as the transferor or transferee in relation to transfers of securities as to which the deceased was the transferor or transferee (as the case may be) in the interest period in which he died.

18H. — (1) This paragraph applies where an underwriting member of Lloyd's or of an approved association of underwriters is entitled to securities forming part of a premiums trust fund or to different securities forming part of different premiums trust funds.

(2) Where there is one such fund, he shall be treated for the purposes of Schedule 20 to this Act as holding the securities forming part of it as one person and as holding as another person any other securities to which he is entitled.

(3) Where there is more than one such fund, he shall be treated for those purposes as holding the securities forming part of different funds as different persons and as holding as yet another person any other securities (not forming part of such a fund) to which he is entitled.

(4) In relation to the securities forming part of such a fund, four of the references in Schedule 20 to this Act to a person (where they would otherwise be to the member) shall be read as references to the underwriting agent through whom the business to which the fund relates is carried on; and the four references are the reference in paragraph 2(1), the first two in paragraph 6(1) and the first in paragraph 6(2).

(5) Where an underwriting member of Lloyd's or of an approved association of underwriters is entitled to securities forming part of a premiums trust fund, and different securities are attributable to his participation in different syndicates, the securities attributable to different syndicates shall be treated for the purposes of this paragraph as forming part of different premiums trust funds.

18I. In paragraph 7(3)(a) of Schedule 10 to the Taxes Act (special reserve funds) "income" includes annual profits or gains chargeable to tax by virtue of section 71(2) of this Act or paragraph 2(4) of Schedule 20 to this Act or paragraph 13(3) above.'.

No. 103, in page 189, line 38, at end insert—

'23A. — (1) In this paragraph "conversion" means conversion within the meaning of section 82 of the Capital Gains Tax Act 1979, and "exchange" means an exchange which by virtue of Chapter II of Part IV of that Act (reorganisation etc.) does not involve a disposal.

(2) Where on a conversion or exchange of securities a person is treated as entitled to a sum under section 70(2)(a) of this Act,


an amount equal to the accrued amount (determined under that section) shall, for capital gains tax purposes, be treated as follows—

(a) to the extent that it does not exceed the amount of any consideration which the person receives (or is deemed to receive) or becomes entitled to receive on the conversion or exchange (other than his new holding), it shall be treated as reducing that consideration, and
(b) to the extent that it does exceed that amount, it shall be treated as consideration which the person gives on the conversion or exchange.

(3) Where on a conversion or exchange of securities a person is treated as entitled to relief under section 70(3)(a) of this Act, an amount equal to the rebate amount (determined under that section) shall, for capital gains tax purposes, be treated as consideration which the person receives on the conversion or exchange.'.— [Mr. Peter Rees.]

Clause 78

GIFTS INTER VIVOS

Amendment made: No. 51, in page 83, line 8, leave out
'below to contain a certificate'
and insert
'or (2) below to be certified'.—[Mr. Ian Stewart.]

Clause 80

DEATH: VARYING DISPOSITIONS, AND APPROPRIATIONS

Amendments made: No. 52, in page 84, line 10, at end insert—

'(4A) Where on an intestacy property is appropriated by a personal representative in or towards satisfaction of any interest of a surviving husband or wife in the intestate's estate, stamp duty under the heading mentioned in subsection (1) above shall not be chargeable on an instrument giving effect to the appropriation.
(4B) The reference in subsection (4A) above to an interest in the intestate's estate—

(a) includes a reference to the capital value of a life interest which the surviving husband or wife has under the Intestates' Estates Act 1952 elected to have redeemed, and
(b) in Scotland, includes a reference to prior rights (within the meaning of the Succession (Scotland) Act 1964) but, without prejudice to subsection (4C) below, not to such rights as are mentioned in that subsection.

(4C) Where in Scotland, on an intestacy or otherwise, property is appropriated by a personal representative in or towards satisfaction of the right of a husband to jus relicti, of a wife to jus relictae or of issue to legitim, stamp duty under the heading mentioned in subsection (1) above shall not be chargeable on an instrument giving effect to the appropriation.'.

No. 53, in page 84, line 13, leave out 'or (4)' and insert
', (4), (4A) or (4C)'.

No. 54, in page 84, line 19, leave out 'This' and insert
'Subject to subsection (8) below, this'.

No. 55, in page 84, line 21, at end insert—
'(8) Subsections (4A) to (4C) above and, so far as it relates to subsection (4A) or (4C), subsection (5) above apply to instruments executed on or after 1st August 1985.'.—[Mr. Ian Stewart.]

Clause 89

ABOLITION OF DEVELOPMENT LAND TAX AND TAX ON DEVELOPMENT GAINS

Mr. Terry Davis: I beg to move amendment No. 157, in page 90, line 1, leave out clause 89.
This is the clause which abolishes development land tax, and we discussed it in some detail in Committee of the whole House.

The Chancellor of the Exchequer (Mr. Nigel Lawson): Absolutely.

Mr. Davis: The right hon. Gentleman says, "Absolutely". Since he has been watching the proceedings with interest and no doubt has been considering events outside the House, he will know that the purpose of the clause has been widened as a result of the ingenious schemes pursued by tax lawyers since our debate in Committee of the whole House. I am glad that the right hon. Gentleman sees the clause as so important that he has decided to attend the debate.
The clause abolishes development land tax, at a cost of £50 million — [HON. MEMBERS: "Hear, hear."] I recognise that that is popular among Government supporters, but the Opposition take a different view. The purpose of the amendment is to debate loopholes which have emerged as a result of the sloppy drafting of the Bill since our debate in Committee of the whole House.
The Government's intention, as announced in the Budget by the Chancellor of the Exchequer and repeated in our debate in Committee of the whole House, is to abolish development land tax with effect from the date of the Budget announcement. Subsequently, it has become clear that it is possible that development land tax has been abolished with effect before the date of the Budget, and it has happened in two ways.
It has become clear that it is possible for developers to use an existing deemed disposal in such a way that they can change the basis of the development land tax charge and avoid the charge which they would otherwise have incurred.
I give an example, which I take from an interesting article in The Law Society's Gazette of 8 May. The author points out that a developer who had planning permission to build 100 houses and whose development was due to last four years could have become liable to development land tax at the beginning of, say, March as a result of giving notice of the beginning of his project. If, after the Budget statement, he changed his mind and decided to build a smaller number of houses — say, 10 instead of 100 houses — to leave the other 90 houses until a later date and therefore to a later decision, and served a notice of variation of the project so that he was only taxed on a project for 10 houses, in the future he could change his mind again and decide to build more houses—90, 89 or 91 — and this decision and the development of the land would not be taxed.
There is the possibility of applying the decision in the case of Furniss v. Dawson about a pre-ordained series of transactions being taken as a single composite transaction where steps had been inserted which had no commercial purpose other than that of avoiding tax. However, it is clear that when this project began it was not pre-ordained that the other steps would follow, and it could be held that the variation of the project and the subsequent project could not be treated as a series of transactions or that that series of transactions could be ignored by the Revenue. It would be possible for a developer to avoid tax, especially if he could argue that there was some other commercial purpose for the variation and for the new project. As the author of the article pointed out, there could well be no


problem in finding such reasons. The changes would mean that developers would not be liable for development land tax, which the Government intend them to pay.
I am aware that other clauses seek to prevent tax avoidance, but as the author of the article points out, in practice the clauses are not operated. That is one way in which a developer could avoid the stated intention of the Chancellor of the Exchequer on development land tax, which was that if a developer had already incurred liability on the date of the Budget statement, the tax would be payable.
A second way for a developer to avoid his tax liability would be to rescind a contract for the sale for development. With a contract which disposes of land the developer becomes liable for tax, but that liability can be extinguished by rescinding the contract before completion, and therefore vitiating the pre-19 March disposal. Again, the Opposition believe that people whom the Chancellor intends should pay tax, could avoid it.
We are drawing those two loopholes to the attention of the Economic Secretary. I am glad that he will reply to the debate because, in a previous debate on Report, I drew his attention to a loophole which the Government were blocking, but only after waiting 11 months. I also drew his attention to a second loophole involving the same tax, and asked him whether the Government intended to block it before they lost money, but he could not answer that question.
This time I hope that the hon. Gentleman will answer because next year the Treasury will not be able to block these loopholes. The developers will have got away with it, and the law will have applied as it is now. If, as the article suggests, those loopholes exist, the Treasury Ministers and the Chancellor of the Exchequer are obliged to ensure that the Budget statement of 19 March is put into effect by blocking these loopholes tonight.

Mr. Ian Stewart: The hon. Member for Birmingham, Hodge Hill (Mr. Davis) raises a question which derives from an article in The Law Society's Gazette of 8 May, in which Mr. Clifford Joseph, a barrister, suggested that development land tax on existing disposals or projects could be mitigated through arrangements involving rescission of existing contracts or variation of projects. However, he then said that purely contrived schemes could be challenged by the Inland Revenue on the strength of the House of Lords decision in the Furniss v. Dawson case.
I have asked the Inland Revenue to study the implications, but I understand that no cases have come to its attention, in which post-Budget rescissions have been made of pre-Budget contracts. I note the hon. Gentleman's comments, and shall certainly ensure that his points are followed up.

Mr. Davis: What will happen if the hon. Gentleman finds such a case? Why not block the loophole before the Bill is enacted? How will the Inland Revenue know whether the contracts have been rescinded or varied? Perhaps it is given notice. The developers who intend to use the loophole may well be waiting until the Bill is enacted, or at least has completed its Report and Third Reading. By then it will be too late for the Government to block the loopholes. Why have they not taken action? They have had two months since The Law Society's Gazette drew it to everybody's attention. What are they waiting for? On Monday they managed to table

amendments to change the basis of capital gains tax. Why are they not prepared to stop developers avoiding development land tax? They have had two months, not two days.

Mr. Ian Stewart: The hon. Gentleman is correct to say that the matter was drawn to public attention some time ago. Had there been evidence of a serious risk of circumvention of the proposals, it would have been possible to frame means of dealing with that in the Bill. The matter has been drawn to the attention of the Revenue and I have asked that it should respond. It has advised me that no such cases of rescission have come to its notice. That is as far as I can reassure the hon. Gentleman.

Mr. Davis: How significant is that explanation? Does the Minister expect any examples of rescission — all examples of rescission and all rescissions and variations — to come to the notice of the Revenue? Is he saying that, if there are rescissions or variations the Inland Revenue is informed, or do we rely on pot luck?

Mr. Stewart: Notice is not automatic, but the Revenue keeps in touch with these matters. Of course, there cannot be rescission unless there is existence in the first place.

Mr. Davis: I am not satisfied with that explanation. The Treasury has had long enough to look into these matters. I do not intend to delay the proceedings this evening by calling a Division, but I put it on record that the Government are happy to wait until a loophole has been exploited before they say or do anything about it, if they do. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 24

CAPITAL TRANSFER TAX: CONDITIONAL EXEMPTION

Amendments made: No. 104, in page 196, line 29, leave out 'beneficially entitled' and insert 
'entitled (either beneficially or otherwise)'.

No. 105, in page 197, leave out lines 26 to 30 and insert—
'(2) Where there has been a conditionally exempt transfer of any property (or part), tax shall be charged under this section in respect of that property (or part) on the first occurrence after the transfer of an event which under this section is a chargeable event with respect to that property (or part).'

No. 106, in page 198, line 37, after 'event', insert
'with respect to the property (or part) concerned'.

No. 107, in page 199, line 20, leave out 
'part only of one of the associated properties'
and insert
'one of the associated properties or part of it'.

No. 108, in line 24, leave out
'part only of one of the associated properties'
and insert
'one of the associated properties or part of it'.

No. 109, in line 29, after 'the', insert 'property or'.

No. 110, in line 31, after 'that', insert 'property or'.

No. 111, in line 37, leave out from 'Act,' to end of line 38 and insert
'at the end there shall be added "or, where the property has been disposed of as mentioned in section 32A(5) above, before any event which apart from section 32A(5) would have been such a chargeable event."'.—[Mr. Peter Rees.]

New Schedule

'GROUP RELIEF

PART I

GENERAL MODIFICATIONS

Interpretation

1. In this Part of this Schedule—

(a) a "company owned by a consortium" means either such a trading company as is referred to in paragraph (a) or paragraph (b) of subsection (2) of section 258 of the Taxes Act or such a holding company as is referred to in paragraph (c) of that subsection (companies owned directly or indirectly by consortia);
(b) a "consortium claim" means a claim for group relief made by virtue of subsection (2) of section 258 of the Taxes Act;
(c) a "group claim" means a claim for group relief made by virtue of subsection (1) of that section;
(d) a "group/consortium company" means a company which is both a member of a group of companies and a company owned by a consortium;
(e) "relevant accounting period" means an accounting period beginning on or after 1st August 1985; and
(f) other expressions have the same meaning as in section 258 and the following sections of Chapter I of Part XI of the Taxes Act.

Claims for losses etc. of a group/consortium company

2.—(1) For the purpose of a consortium claim in respect of the loss or other amount of any relevant accounting period of a group/consortium company, that loss or other amount shall be treated as reduced (or, as the case may be, extinguished) by first deducing therefrom the potential relief attributable to group claims.

(2) Subject to sub-paragraph (3) below, in relation to the loss or other amount of a relevant accounting period of a group/consortium company, the potential relief attributable to group claims is the aggregate amount of group relief that would be claimed if every company which, as a member of the same group of companies as the group/consortium company, could make a group claim in respect of that loss or other amount made such a claim for an amount which, when set against the claimant company's total profits for its corresponding accounting period, would equal those profits.

(3) Where for any accounting period another member of the group of companies of which the group/consortium company is a member has a loss or other amount available for relief and one or more group claims is or are in fact made in respect of that loss or other amount, account shall be taken of the relief so claimed before determining (in relation to the loss or other amount of the group/consortium company) the potential relief attributable to group claims under sub-paragraph (2) above.

Claims for relief by a group/consortium company

3.—(1) In any case where—

(a)a consortium claim is made by a group/consortium company in respect of a loss or other amount of an accounting period of a member of the consortium, and
(b) the corresponding accounting period of the group/consortium company is a relevant accounting period.

the total profits of that accounting period of the group/consortium company, against a fraction of which that loss or other amount may be set off (in accordance with section 259(8)(b) of the Taxes Act), shall be treated as reduced (or, as the case may be, extinguished) by deducting therefrom the potential relief available to the group/consortium company by way of group claims.

(2) Subject to sub-paragraph (3) below, in relation to a relevant accounting period of a group/consortium company, the potential relief available to the company by way of group claims is the maximum amount of group relief that could be claimed by the company for that accounting period on group claims relating to the losses or other amounts available for relief of other members of the group of companies of which the group/consortium company is a member.

(3) Where another member of the group of companies of which the group/consortium company is a member in fact makes

one or more group claims in respect of losses or other amounts of other members of the group, account shall be taken of the relief already claimed by that company in determining the potential relief available to the group/consortium company by way of group claims under sub-paragraph (2) above.

Trading losses to be set against profits before group relief

4.—(1) Where a company owned by a consortium—

(a) has in any relevant accounting period incurred such a loss as is referred to in section 259(1) of the Taxes Act, and
(b) has profits (of whatever description) of that accounting period against which that loss could be set off under subsection (2) of section 177 of that Act,

the amount of that loss which is available to any member of the consortium on a consortium claim shall be determined on the assumption that the company owned by the consortium has made a claim under that subsection requiring the loss to be so set off.

(2) Where the company referred to in sub-paragraph (1) above is a group/consortium company, the amount of the loss shall be determined under that sub-paragraph before any reduction is made under paragraph 2 above.

Extension of scope of consortium relief

5.—(1) This paragraph applies where—

(a) a company (in this paragraph referred to as "the link company") which is a member of a consortium is also a member of a group of companies; and
(b) the link company could (disregarding any deficiency of profits) make a consortium claim in respect of the loss or other amount eligible for relief of a relevant accounting period of a company owned by the consortium.

(2) Subject to sub-paragraph (3) and (4) below, a company (in this paragraph referred to as a "group member") which is a member of the group referred to in sub-paragraph (1)(a) above but is not itself a member of the consortium may make any consortium claim which could be made by the link company; and the fraction which is appropriate under section 259(8) of the Taxes Act where a group member is the claimant company shall be the same as that which would be appropriate if the link company were the claimant company.

(3) A group member may not, by virtue of sub-paragraph (2) above, make a consortium claim in respect of the loss or other amount of any relevant accounting period of a company owned by the consortium unless the claimant company was a member of the group concerned throughout the whole of the accounting period or, as the case may be, each accounting period of the link company which, if that company were making the claim, would be a corresponding accounting period in relation to the relevant accounting period concerned.

(4) The maximum amount of relief which, in the aggregate, may be claimed by group members and the link company by consortium claims relating to the loss or other amount of any relevant accounting period of a company owned by the consortium shall not exceed the relief which could have been claimed by the link company (disregarding any deficiency of profits) if this paragraph had not been enacted.

6.—(1) This paragraph applies where—

(a) a company (in this paragraph referred to as "the link company") which is a member of a consortium is also a member of a group of companies; and
(b) a company which is a member of that group of companies but is not itself a member of the consortium has for any relevant accounting period a loss or other amount available for relief;

and, in relation to the link company, any reference in this paragraph to a group member is a reference to a company falling within paragraph (b) above.

(2) Subject to the following provisions of this paragraph, a company owned by the consortium may make any consortium claim in respect of the loss or other amount referred to in subparagraph (1)(b) above which it could make if the group member were a member of the consortium at all times when the link company was such a member, but not at any other time.

(3) The fraction which is appropriate under section 259(8) of the Taxes Act in relation to a consortium claim made by virtue of sub-paragraph (2) above shall be the same as that which would be appropriate if the link company were the surrendering company, except that the accounting period in respect of which


the Member's share in the consortium is to be ascertained shall be that of the group member which is in fact the surrendering company.

(4) A company owned by the consortium may not, by virtue of sub-paragraph (2) above, make a consortium claim in respect of the loss or other amount of any relevant accounting period of a group member unless, throughout the whole of that accounting period, the group member was a member of the group of companies referred to in sub-paragraph (1) above.

(5) for any accounting period of a company owned by the consortium (in this sub-paragraph referred to as "the claimant company's accounting period"), the maximum amount of relief which, in the aggregate, may be claimed by that company by consortium claims relating to the losses or other amounts of accounting periods of the link company and group members shall not exceed that fraction of the total profits of the claimant company's accounting period which would be brought into account under section 259(8)(b) of the Taxes Act on a consortium claim in respect of which—

(a) the link company was the surrendering company; and
(b) the link company's accounting period was the same as the claimant company's accounting period.

Restriction on consortium claims where companies join or leave consortium

7.—(1) In any case where—

(a) a consortium claim is made in respect of the loss or other amount of a relevant accounting period of a company owned by a consortium (in this paragraph that claim is referred to as "the primary claim", that company is referred to as "the principal surrendering company" and that accounting period is referred to as "the principal accounting period"), and
(b) the company making the primary claim or, if that claim is made by virtue of paragraph 5 above, the company which is the link company for the purposes of that paragraph was not a member of the consortium throughout the whole of the principal accounting period, and
(c) on or after the date on which the primary claim is made, a consortium claim is made which falls within sub-paragraph (2) below,

no relief shall be allowed on the primary claim, or, as the case may be, any relief which was so allowed shall be withdrawn.

(2) A consortium claim is to be taken into account under subparagraph (1)(c) above if—

(a) it is in respect of the loss or other amount of an accounting period of a surrendering company (being a company owned by the consortium referred to in subparagraph (1) above); and
(b) it is made by the company making the primary claim or, if that claim or the claim mentioned in this subparagraph is made by virtue of paragraph 5 above, by any other member of the group referred to in subparagraph (1) (a) of that paragraph; and
(c) at any time during the principal accounting period the surrendering company is a member of the same group of companies as the principal surrendering company; and
(d) the accounting period to which the claim relates falls, in whole or in part, within the principal accounting period.

(3) Where any relief which has been allowed is withdrawn by virtue of sub-paragraph (1) above, all such adjustments shall be made, whether by way of assessment or otherwise, as may he necessary in consequence of that withdrawal.

8.—(1) In any cases where—

(a) a company owned by a consortium makes a consortium claim (in this paragraph referred to as "the primary claim") in respect of the loss or other amount of a relevant accounting period of a member of the consortium or, if the primary claim is made by virtue of paragraph 6 above, of a company which, in relation to that member of the consortium, is a group member, within the meaning of that paragraph, and
(b) the member of the consortium concerned (whether as the surrendering company or the link company, within the meaning of paragraph 6 above) was not a member

of the consortium throughout the whole of the relevant accounting period referred to in paragraph (a) above, and
(c) on or after the date on which the primary claim is made, a consortium claim is made which falls within sub-paragraph (2) below,

no relief shall be allowed on the primary claim or, as the case may be, any relief which was so allowed shall be withdrawn.

(2) A consortium claim is to be taken into account under subparagraph (1) (c) above if—

(a) it is made by a company owned by the consortium referred to in sub-paragraph (1) above; and
(b) the company making the claim is a member of the same group of companies as the company making the primary claim; and
(c) the claim relates to the loss or other amount of an accounting period of the consortium member referred to in sub-paragraph (1) above or of a company which, in relation to that consortium member, is a group member, within the meaning of paragraph 6 above; and
(d) the accounting period referred to in paragraph (b) above falls, in whole or in whole or in part, in the relevant accounting period referred to in sub-paragraph (1)(a) above.

(3) Where any relief which has been allowed is withdrawn by virtue of sub-paragraph (1) above, all such adjustments shall be made, whether by way of assessment or otherwise, as may be necessary in consequence of that withdrawal.

PART II

AMENDMENTS OF SECTION 263 OF TAXES ACT

9.— (1) At the beginning of subsection (3) there shall be inserted the words "Subject to subsections (3A) and (3B) below".

(2) In that subsection for the words from "are made" to "relate to" there shall be substituted the words "relating to".

(3) In that subsection after the words "surrender company", in the first place where they occur, there shall be inserted "arc made by two or more claimant companies which themselves are members of a group of companies".

10. After subsection 83) there shall be inserted the following subsections:—
(3A) If companies which are members of different groups make claims falling within subsection (3) above, that subsection shall apply separately in relation to the companies in each group.
(3B) For the purposes of subsection (3) above, there shall be left out of account a claim made by a company if—

(a) the claimant company joins or leaves a group of companies at the same time as the surrendering company; and
(b) both before and after that time either the claimant company is a 75 per cent. subsidiary of the surrendering company or the surrendering company is a 75 per cent. subsidiary of the claimant company or both companies are 75 per cent. subsidiaries of another company."

11. — (1) In subsection (4) for the words "If claims for group relief" there shall be substitued "Subject to subsection (4A) below, if claims as respects two or more surrendering companies which themselves are members of a group of companies".

(2) In that subsection the words "as respects more than one surrendering company" shall be omitted.

12. After subsection (4) there shall be inserted the following subsections:—

"(4A) If claims falling within subsection (4) above are made as respects surrendering companies which are members of different groups, that subsection shall apply separately in relation to claims as respects the surrendering companies in each group.
(4B) For the purposes of subsection (4) above, there shall be left out of account a claim made as respects a surrendering company if—

(a) the surrendering company joins or leaves the group of companies concerned at the same time as the claimant company; and
(b) both before and after that time either the surrendering company is a 75 per cent. subsidiary of the claimant company or the claimant company



is a 75 per cent. subsidiary of the surrendering company or both companies are 75 per cent. subsidiaries of another company."

13. For subsection (5) there shall be substituted the following subsection:—
(5) References in subsection (3) to (4A) above to claims for group relief do not include references to consortium claims, that is to say, claims made by virtue of section 258(2) above.".'.—[Mr. Peter Rees.]

Brought up, read the First and Second time, and added to the Bill.

New Schedule

SUPPLEMENTARY PROVISIONS AS TO WITHDRAWAL OF TAX CREDITS

Recovery of tax credits incorrectly paid

1. — (1) Where the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act apply so as to withdraw the entitlement of a company to claim to have a tax credit in respect of a qualifying distribution set against the income tax chargeable on its income and to have the excess of the credit over that income tax paid to it and the company (in this paragraph referred to as "the recipient company") has either had that excess paid to it, or has received an additional amount in accordance with arrangements made under Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973, it shall be liable to a fine for the violation of the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act equal to twice the amount of the excess or additional amount as the case may be and such fine (in this section referred to as "the recoverable amount") shall be payable to the Board and be treated as having become payable at the date when the excess or additional amount was paid to the recipient company and may be recovered in accordance with subparagraphs (2) to (5) below.

(2) The recoverable amount may be assessed and recovered as if it were unpaid tax and section 30 of the Taxes Management Act 1970 (recovery of overpayment of tax, etc) shall apply accordingly.

(3) Any amount which may be assessed and recovered as if it were unpaid tax by virtue of this paragraph shall carry interest at the rate of 9 per cent. per annum from the date when it was payable in accordance with this paragraph until the date it is paid and it is hereby declared that this paragraph applies to a recoverable amount which is paid without the making of an assessment (but is paid after it is due) and that, where the recoverable amount is charged by any assessment (whether or not any part of it has been paid when the assessment is made), this paragraph applies in relation to interest running before, as well as after, the making of the assessment.

(4) Where the recoverable amount is not paid by the recipient company within six months from the date on which it became payable—

(a) the recoverable amount may at any time within six years from the date on which it became payable be assessed and recovered as if it were unpaid tax due from any person who is or was at any time prior to the expiration of the said six year period connected with the recipient company, or would have been connected on the assumption that all the facts and circumstances relating to the recipient company at the time the excess or additional amount as the case may be was paid continued to apply for six years thereafter, and section 30 of the Taxes Management Act 1970 shall apply accordingly, and
(b) as respects its accounting periods beginning with that in which the excess or additional amount referred to in sub-paragraph (1) above was paid and ending with that following that in which the recoverable amount is paid in accordance with the provisions of this paragraph, the company which made the qualifying distribution in respect of which the recipient company received the excess or additional amount shall not be entitled to set any advance corporation tax paid by it against its

liability to corporation tax for such periods in accordance with section 85 of the Finance Act 1972 (payments of advance corporation tax to be set against company's liability to corporation tax on its income) nor to surrender the benefit of the whole or any part of any amount of advance corporation tax to a subsidiary in accordance with section 92 of that Act (setting of company's surplus advance corporation tax against subsidiary's liability) in such periods.

(5) Where a recoverable amount is assessed and recovered from a person connected with the recipient company in accordance with sub-paragraph (4)(a) above, that person shall be liable for the interest payable in accordance with sub-paragraph (3) above and, until the interest is so paid, sub-paragraph (4)(b) above shall apply as if the words "the interest due in accordance wih subparagraph (3) above is paid" were substituted for the words "the recoverable amount is paid in accordance with the provisions of this paragraph".

(6) Interest payable under this paragraph shall be paid without any deduction of income tax and shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

(7) Where under the law in force in a territory outside the United Kingdom interest is payable subject to a deduction in respect of taxation and such deduction applies to an amount of interest paid in accordance with sub-paragraph (3) above, the reference to the rate of 9 per cent. per annum in that sub-paragraph shall be deemed to be a reference to such rate of interest as after such deduction shall be equal to the rate of 9 per cent, per annum.

Claims to payment of tax credits following remedial legislation in unitary states

2. — (1) This paragraph has effect where a company to which section [Withdrawal of right of certain non-resident companies to payment of tax credits] applies has a qualifying presence in a province, state or other part of a territory outside the United Kingdom which has been prescribed as a unitary state for the purposes of that section and, at the time when a qualifying distribution is made to that company by a company which is resident in the United Kingdom, that state has enacted legislation the effect of which is that, as from a future date which shall not be later than 31st December 1986, it will cease to be a unitary state within the meaning of the definition in paragraph 5(1) below, notwithstanding that it remains prescribed as such for the purposes of that section.

(2) In the circumstances described in sub-paragraph (1) above the company in receipt of the qualifying distribution shall be entitled on or after the effective date to claim to have the tax credit to which it is entitled in respect of the distribution set against its liability to income tax and to have the excess (if any) of the credit over that liability paid to it; but, if payment of the excess or of the additional amount referred to in Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973 is made before the effective date, the provisions of paragraph 1 above shall apply in relation to that payment regardless of the enactment of the legislation referred to in sub-paragraph (1) above.

(3) For the purposes of this paragraph the efective date shall be deemed to be the date (Not to be later than 31st December 1986) on which the legislation referred to in sub-paragraph (1) above actually becomes effective in the province, state or other part of the territory outside the United Kingdom which has been prescribeed as a unitary state for the purposes of section [Withdrawal of right of certain non-resident companies to payment of tax credits], irrespective of the date, if any, specified in that legislation.

Avoidance of provision withdrawing tax credits

3.—(1) in any case where arrangements are made, whether before or after section [Withdrawl of right of certain non-resident companies to payment of tax credits] comes into force, as a result of which interest is paid or a discount is allowed by or through a person who is resident in the United Kingdom, or carries on business in the United Kingdom through a branch or agency, and it is reasonable to suppose that, if such payment or allowance had not been made, a qualifying distribution would have been made by the person by or through whom the payment or allowance is made, or by another company resident in the United Kingdom,


to a company which has, or is an associated company of a company which has, a qualifying presence in a unitary state at the time when the payment or allowance is made, then—

(a) no person who receives that payment or allowance shall be entitled to relief from income tax or corporation tax thereon by virtue of arrangements having effect under section 497(1) of the Taxes Act, and
(b) the payment or allowance shall not be allowed as a deduction in computing any income profits or losses for any tax purposes.

(2) Without prejudice to the generality of sub-paragraph (1) above, where a payment or allowance is not of itself a payment or allowance to which sub-paragraph (1) above applies, but is made in conjunction with other payments of whatever nature and taken together with those payments has substantially similar effect to a distribution, then, for the purposes of sub-paragraph (1) above, it shall be treated as a payment or allowance within that sub-paragraph.

(3) Any company which has received such a payment of interest as is referred to in sub-paragraph (1) above, from which income tax has not been deducted by the person making the payment, and has a qualifying presence in a unitary state at the time of the payment, shall be treated for the purposes of paragraph 1 above as a company from which the entitlement to claim payment of the excess of a tax credit over the income tax chargeable on its income has been withdrawn by section [Withdrawal of right of certain non-resident companies to payment of tax credits] (1) and which has had paid to it such an excess in an amount equal to the income tax which should have been deducted from the payment of interest.

Power to inspect documents of non-resident companies

4.—(1) Where it appears to the Board that the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] and this Schedule may apply to a company resident outside the United Kingdom (in this paragraph referred to as a "foreign parent"), the Board may, by notice in writing given to the foreign parent or any associated company of that foreign parent, require that company within such time (not being less than thirty days) as may be specified in the notice to make available for inspection any books, accounts, or other documents or records whatsoever of that company where in the opinion of the Board it is proper that they should inspect such documents for the purposes of ascertaining whether the said provisions apply to the foreign parent or such associated company notwithstanding that in the opinion of the person to whom the notice is given those provisions do not apply to that company or any associated company of that company.

(2) In the Table to section 98 of the Taxes Management Act 1970 (penalties) at the end of the first column there shall be added—

"Paragraph 4 of Schedule [Supplementary provisions as to withdrawal of tax credits] to the Finance Act 1985".

Meaning of "unitary state", etc

5.—(1) In this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—
group" and "member of a group" shall be construed in accordance with section 272(1) of the Taxes Act (definition of groups of companies) with the omission of the restriction in paragraph (a) of that subsection and the substitution of the words "51 per cent." for the words "75 per cent." wherever they occur,
qualifying distribution" has the same meaning as in Part V of the Finance Act 1972 (taxation of companies and company distributions),
unitary state" means a province, state or other part of a territory outside the United Kingdom with the government of which the arrangements referred to in subsection (1) of section [Withdrawal of right of certain non-resident companies to payment of tax credits] have been made which, in taxing the income or profits of companies from sources within that province, state or other part, takes into account, or is entitled to take into account, income, receipts, deductions, outgoings or assets of such companies, or of associated companies of such companies,

arising, expended or situated as the case may be outside that territory and which has been prescribed under subsection (7) of that section as a unitary state for the purposes of that section; but no such province, state or other part shall be so prescribed which only takes into account such income, receipts, deductions, outgoings or assets—

(a) if the associated company was incorporated under the law of the territory, or
(b) for the purpose of granting relief in taxing dividends received by companies.

(2) For the purposes of this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—

(a) section 533 of the Taxes Act (connected persons) applies; and
(b) section 302 of the Taxes Act (meaning of "associated company" and "control") applies with the substitution of the words "six years" for "one year" in subsection (1) of that section.'.—[Mr. Peter Rees.]

Brought up, read the First and Second time, and added to the Bill.

Schedule 25

REPEALS

Amendments made: No. 159, in page 203, line 32, column 3, at beginning insert



'In section 263(4), the words "as respects more than one surrendering company".'.

No. 160, in page 204, line 25, at beginning insert—
'The repeal in section 263 of the Income and Corporation Taxes Act 1970 has effect in accordance with section [Group relief: modifications] (2)(b) of this Act.'.

No. 112, in page 207, line 4, at beginning insert—


'1970 c. 10.
The Income and Corporation Taxes Act 1970.
Section 270(3).


1975 c. 45.
The Finance (No. 2) Act 1975
In section 58(12), the words from "(other' to "that Act)".'.

No. 113, in line 4, column 3, at beginning insert—



'In section 65, in subsection (1)(b), the words from "and this" to the end and in subsection (7)(b), the words from "subject" to "above".



In section 66, in subsection (4), the words from "and in" to the end.



Section 67(2) and (3).



Sections 68 to 70.



In section 84, in subsection (3)(b)(ii), the words "if the disposal is within" and "that section".

No. 114, in line 5, at end insert—


'1981 c. 35.
The Finance Act 1981.
In section 41, in subsection (1) the words "or gains or losses" and in subsections (2) and (3) the words "gains or losses".'.

No. 115, in line 5, column 3, at end insert—



'In Schedule 7, paragraph 2(2) and in the Table in paragraph 9, the second entry relating to section 58(12) of the Finance (No. 2) Act 1975.'.

No. 116, in line 6, column 3, at beginning insert—





'In section 58, in subsection (5) the words from "including" to "gains" and subsection (6)'.

No. 117, in column 3, leave out lines 14 and 15 and insert—



'In section 88, in subsection (1) the words "and section 89 below" and "section 89 below", paragraph (b) and the word "and" immediately preceding it; and subsection (5A).



Section 89.'.

No. 118, in line 32, at end insert—


'1984 c. 43.
The Finance Act 1984.
In Schedule 9, in paragraph 11 (1) the words "and 89".




In Schedule 13, paragraph 4 and paragraph 9(b) and the word "and" immediately preceding it.'.

No. 119, in line 34, at beginning insert—
`The repeals in section 270 of the Income and Corporation Taxes Act 1970, section 58 of the Finance (No. 2) Act 1975, sections 65 to 70 and 84 of and Schedule 7 to the Capital Gains Tax Act 1979, section 41 of the Finance Act 1981, section 58 of the Finance Act 1982 and Schedule 13 to the Finance Act 1984 have effect with respect to disposals on or after 2nd July 1986.'.

No. 120, in line 39, leave out from '1983' to 'have' in line 40 and insert
'the Finance (No. 2) Act 1983 and Schedule 9 to the Finance Act 1984.'.

No. 121, in line 42, after 'Act' insert
'(other than those mentioned in paragraph (bb) below)'.

No. 122, in line 43, at end insert—
'(bb) in the case of gilt-edged securities as defined in Schedule 2 to the Capital Gains Tax Act 1979 and qualifying corporate bonds as defined in section 64 of the Finance Act 1984, with respect to disposals on or after 2nd July 1986, and'. — [Mr. Peter Rees.]

Mr. Peter Rees: I beg to move, That the Bill be now read the Third time.
This is the final stage of a long and intricate legislative process. I ventured to say at the beginning of the debate on Second Reading that it was a good Bill, but I am ready to admit that it has been improved in Committee and on Report. There have been valuable contributions from Government and Opposition Members in Committee and on the Floor of the House.
The Bill may not have quite the same dramatic impact as last year "s Finance Bill and it has not had the same dramatic passage through the House. However, the Bill has been considered in Committee rather better than last year's Finance Bill. It has one inestimable quality, which I am sure will command the approbation of the entire House. Although it amounts to 98 clauses and 27 schedules, the repeals in schedule 25 remove many measures from the statute book and we are not making a net addition to the statute book.
More significantly, the Bill sustains the momentum of fiscal reform. The abolition of development land tax did not entirely command the approbation of the hon. Member for Birmingham, Hodge Hill (Mr. Davis), but it is one of the features of the Bill. Other features are the indexation

provisions for capital gains tax, the exclusion of gilts and certain corporate bonds from capital gains tax, which goes far to simplify an unduly complex tax, the simplification and modernisation of many of the stamp duty provisions and the unitary tax measures, which were debated in the early hours of yesterday morning and for which we are indebted to my hon. Friend the Member for Surrey, North-West (Mr. Grylls) and other of my right hon. and hon. Friends. I am sure that that measure will make a valuation contribution to the development of thought on both sides of the Atlantic on that complex issue.
Finally, I turn to the recommendation of the Keith committee on the administration of indirect taxes. I paid a tribute, which I shall not repeat, on Second Reading to the labours of that committee. It has produced a thoroughly painstaking and admirable piece of work. The fact that we have adopted more or less most of the recommendations in legislative form is eloquent testimony of our regard for the committee's work. I am sure that it will improve the administration of the taxes for which Customs and Excise is responsible while maintaining a fair balance between the interests of the administration and those of the taxpayer.
The provisions were inevitably long and complex and they have been properly subjected to close scrutiny in Standing Committee and on Report. It can be claimed that it was quite a feat that the recommendations of the Keith committee should have been implemented in legislative form within two and a half years of the first report, especially when it is borne in mind that there have been extensive consultations and the publication of draft clauses. That is indeed the way that this Administration likes to proceed in complex legislative fields. I also remind the House that it should be the prelude to further provisions next year in regard to direct taxation.
I assure the House and the country that the Government have not lost their appetite for tax reform. As further evidence of that, we shall be publishing in due course a Green Paper on personal allowances and other related subjects.
It was, I believe, a well-conceived, well-constructed, well-criticised and well-considered Bill. It has been improved by our various debates. On that basis, I have no hesitation in commending it to the whole House.

Mr. Terry Davis: The Chief Secretary will not be surprised to learn that we take a different view of the Bill. I think that his reference to the Bill as having been well criticised was intended as some sort of compliment. I see that he is nodding, so I take it as such. We are critical of the Bill in its overall strategy and also in its detailed provisions.
Whereas the Chief Secretary, understandably, regards the abolition of development land tax, at a cost of £50 million to the Exchequer, as a good thing, we regard it as something to be criticised. Similarly, we were and still are critical of the changes in capital gains tax, and of a measure tht I think the Chief Secretary overlooked in his contribution a few moments ago. He did not refer to the extension of VAT to newspaper advertisements — I am sure that it was an oversight — even though it was debated at length in the House. We regard that as one of the serious extensions of the taxation system and we seriously object to it.
There were other features of the debates which are worth putting on record. In Committee, we discussed the increases in the excise duties on spirits, beer, wine, made wine and cider, and it became clear that there was no logic in the Government's approach to those duties. There were different increases in the duties on different drinks and there was no logical explanation for them; at least, there was no logical explanation given to the Committee.
Similarly, we had the benefit of a Minister from the Department of Transport during our consideration of vehicle excise duty. It was the unanimous conclusion of Opposition Members—and, I suspect, the conclusion of some Conservative Members — that there was no logic behind the Government's approach to vehicle excise duty. Again, there were different increases in the rates of vehicle excise duty for different vehicles. It was kindness that led us to terminate that debate, because we were getting no satisfaction whatever from the Minister who had been brought to the Committee to explain what was supposed to be the Government's thinking.
The Opposition regard the Bill as being particularly badly drafted. The Chief Secretary referred to the fact that the Bill consists of 98 clauses, yet during the past two days we have had to deal with 106 Government amendments at this late stage in our proceedings. We dealt with a considerable number of Government amendments in Committee, and since then there have been 106 amendments and new clauses tabled by the Government. I do not object to all of them; indeed, we welcome some of them, and are grateful for amendment No. 129, dealing with the problem of Cyprus sherry. In our earlier exchanges, I paid tribute to the Minister of State, Treasury, for the way in which he approached the problem. That expression of gratitude was sincerely meant.
Nevertheless, putting those very few concessions on one side, the large number of amendments to a Bill with only 98 clauses is significant. Indeed, it compares with only a slightly larger number of amendments that were tabled last year to a much longer Bill. It suggests to us that the draftsmanship on this occasion has been below the standard that we expect from the Treasury and from the Chief Secretary.
A large number of the amendments were moved formally by the Government tonight, showing that they were regarded by the Government as technical amendments. At the same time, we also object to the very short notice that has been given of some amendments tabled for consideration on Report. A few minutes ago my hon. Friend the Member for Thurrock (Dr. McDonald) protested about four amendments that were tabled on Monday. Four more amendments were tabled less than a week ago. Those amendments are significant and change the basis for calculating the value of a disposal for capital gains tax purposes. We regret the Government's treatment of the House in that way.
However, it would be unfair of me not to say that the Chief Secretary to the Treasury in particular has made a great effort to be flexible and co-operative and to consult the Opposition. The Chief Secretary responded to my request in Committee that the Treasury should consult the Opposition in more detail about proposed amendments that affect taxes on the heritage. The Chief Secretary responded to other points that were put to him in Committee. On this occasion, we were provided with a

much more detailed explanation of amendments that were made on the nod on Report. I hope that this precedent will be followed next year.
In putting forward their amendments on Report, some at very short notice, the Government have ignored two or three obvious loopholes, among them the abolition of development land tax. It is unfortunate that the Government have not seen fit to seek our assistance and consult us about the way in which those loopholes could be closed.
Last year, my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) pointed out that the price of the Finance Bill 1984 was £9·75. This year's Finance Bill, which is much shorter, costs £10·20. The increase cannot be justified.

Dr. Marek: The Bill can be criticised for not including what it ought to include, a point which I cannot develop on Third Reading. I can only refer to what it contains. This year's Finance Bill is much less damaging to the country than last year's. I support what was said by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) about vehicle excise duty, which varies according to the number of axles on a lorry. The Treasury has not consulted the Department of Transport because there is no set of principles whereby lorries with different axles are taxed.

Mr. Campbell-Savours: Has my hon. Friend received the correspondence that I have received from hauliers about these new rates of tax? The Government are a net beneficiary, after expenditure on roads, from the tax on heavy goods vehicles. The road haulage industry is most aggrieved. In Committee we dealt in detail with the regional implications of the Government's taxation policy for heavy goods vehicles. If my hon. Friend has received any such correspondence, will he draw it to the attention of the House, in particular the comments of hauliers in North Wales who are most aggrieved by this year's Budget.

Dr. Marek: I should like to oblige my hon. Friend, but unfortunately I have received no correspondence from hauliers in north Wales, or anywhere else, for that matter. However, I have received serious complaints from the county surveyor of Clwyd county council. Heavy lorries are damaging the surface of Clwyd roads particularly the bridges. Local authorities are in difficulty over strengthening these bridges, with very serious consequences. Their difficulties should be reflected in the Finance Bill. Thirty-two tonne vehicles with four axles damage the roads very much more than vehicles with five axles, or light vehicles.
My impression in Committee was that the Government did not know what guidelines they should adopt to ensure that vehicles covered their track costs. It was not clear how the Government defined track costs and I believe that a Minister said at one point, "It is a bit of a mess and we are just starting to put it right."
I hope that the Treasury will insist that the Department of Transport should examine the issue over the coming year and provide details on how the vehicle excise duty tables can be put in order so that there is some fairness in the system and so that lorries cover road costs and the cost of ancillary services such as bridges and street lighting. The costs of accidents and environmental damage should also be included.
I agree with my hon. Friend the Member for Hodge Hill that we were disappointed that there was not a brisk response from the Treasury. Ministers should at least have given the impression that they knew where they were going. We might have argued about that, but we never found out where they were going. I hope that a different attitude will be displayed next year.

Mr. Campbell-Savours: I do not know whether my hon. Friend grasped the point that I made in my previous intervention. I am sure that he wishes to do so, because he comes from an outer region.
The cost of heavy goods vehicle licences bears unnecessarily heavily on hauliers outside the major conurbations. Whenever a manufacturer in my hon. Friend's constituency wishes to supply goods to a major conurbation, he has to pay for haulage and those costs depend greatly on the cost of diesel and the price of a licence.

Mr. Deputy Speaker: Order. Interventions should be brief.

Mr. Campbell-Savours: I hope that my intervention can be kept as brief as possible.

Mr. Deputy Speaker: Order. It has not been very brief so far.

Mr. Campbell-Savours: Transport costs must have implications for regional policy. Wales is as much a region as is Scotland, the south-west or Manchester. These matters should be taken into account by the Government when they set taxes for what are, in effect, infrastructure services in our areas.

Dr. Marek: I do not want to talk about matters that should have been in the Bill, but I assume that the Treasury is taking account of the point made by my hon. Friend. We all have our views about whether diesel should be cheaper and excise duty abolished, with the extra cost being put on petrol.
The Bill includes a comprehensive set of tables. If one compares the rates in the Bill with those in previous Finance Bills it seems that much that was raised was ad hoc. Some things might have been raised in one year and others in another year. The top of a column might have been raised by £25 for the first five entries and by £45 for the next five entries. With reference to page 99, Table C(1) the bottom five entries might have been raised by £60 or £70 but no coherent strategy is evident as to what the Treasury was trying to get at.
The Bill is before us, and there is nothing that we can do about it now. I am not happy about it because I do not understand the system. I hope that the Treasury will be able to liaise with the Department of Transport to produce a set of principles by which we can be guided.

Mr. Campbell-Savours: Is my hon. Friend aware of the special procedure with regard to the introduction of some Bills whereby evidence can be taken prior to a Bill being considered in Committee? Would that not have been a good area in which to proceed on that basis?

Mr. Deputy Speaker: Order. I hope that the hon. Gentleman will not pursue that matter on Third Reading. He knows that the House is required to consider what is in the Bill, not the procedures that led to it.

Mr. Campbell-Savours: If I may complete my intervention—

Mr. Deputy Speaker: I thought that I had indicated to the hon. Gentleman that he was out of order.

Dr. Marek: If my hon. Friend wishes to be in order, I will of course give way in due course.
I deal next with VAT on newspapers, which I regret. This is not the type of thing that Labour would have done if they had been in Government. The newspaper industry was very worried about the provision. It forced it into two sections, the national press on one side and the local press on the other. The local press is not particularly healthy. It survives, and we have a very good local press, but it lives on shoestrings and cannot afford a large increase in cover price. Before the Finance Bill was published, it was feared that VAT might be put on the cover price of newspapers. It was not, for which I am thankful. However, VAT has been put on advertisements.
I cannot object very strongly to the imposition of VAT on advertisements, but I do object to the imposition of VAT on classified advertisements, by which people announce the birth of a son or daughter or a death, or an article for sale. The article offered for sale often is worth only £2 or £3, and the advertising cost must be about 80p which, with VAT 92p. If to that amount has to be added another 15 or 17p for the cost of a stamp, the exercise is made that much less economic. I am somewhat mollified by the fact that the Government, having put VAT on classified advertisements, are not receiving letters from newspapers, including local newspapers, to the effect that they will close down because they are experiencing serious problems. However, newspaper people are unhappy about what is happening.

Mr. Campbell-Savours: My hon. Friend might want to extend the argument because he will recognise the major switch from direct to indirect taxation in the last five years. In 1979 the Conservatives went into a general election—

Mr. Deputy Speaker: Order. We are discussing the Third Reading of the Finance Bill, not its historical background.

Dr. Marek: rose—

Mr. Campbell-Savours: My hon. Friend made a statement and I was referring to the historical background because it was in order for me to suggest that there is a link between the Government's decision to raise indirect taxation and to reduce direct taxation, which is what they have been doing, although both types of taxation have increased. Will my hon. Friend comment on the fact that little things like VAT on fish and chips introduced in the last Budget, which was referred to—

Mr. Deputy Speaker: Order. The hon. Gentleman must not comment upon last year's Budget. We are discussing this year's Finance Bill and we must stick to that.

Mr. Campbell-Savours: On a point of order, Mr. Deputy Speaker. During discussions on this matter repeated references have been made to Government decisions on VAT, and in particular to the imposition of VAT on fish and chips. Reference was made to that because damage was inflicted on a particular sector. The argument about—

Mr. Deputy Speaker: Order. On Third Reading debate is restricted to what is in the Bill. Discussions at previous stages are not relevant. The discussions to which the hon. Gentleman refers are not relevant. Debate must be about the content of the Bill.

Dr. Marek: The Bill has been discussed at length so I do not want to detain the House much longer, but I want to make one or two further points as briefly as possible.
There has been a shift to indirect taxation away from direct taxation. The income tax bands and personal allowances have been raised over the inflation rate so that those people who are at work benefit — over 4 million are not at work and cannot do so. However, the benefits are taken away because of the absurdly high interest rates caused by the Government's idiotic monetarist policies. The advantages for people with mortgages are nullified by the Government's economic policies.
Despite the shift from direct to indirect taxation, overall taxation has gone up under this Administration.
The capital gains tax changes were made by the Government late in the day. The provisions making those changes were tabled so late that I saw them for the first time only yesterday. I did not understand them when I read them then, and I do not fully understand them now. Time did not permit hon. Members to examine those provisions carefully or to take professional advice. Thus, we do not know if they are defective or if we could have improved them. It would have been better for the Government to have left such a change until, say, next year. Alternatively, they should have thought the matter through earlier, and tabled the necessary provisions in good time.

Mr. Campbell-Savours: My hon. Friend may recall that in recent years there have been repeated capital gains tax reductions. In each case we have pressed Ministers to say how many people would be affected by, and the value of, the reductions. On each occasion when figures have been given, the Government have underestimated the revenue loss. When moving their amendments today, the Government refused to say how many people or how much revenue would be involved. They only said that the effect on the revenue would be negligible. Does my hon. Friend agree that next year we should table questions before the Finance Bill—

Mr. Deputy Speaker: Order. One Finance Bill at a time, please. We are dealing with this year's, not next year's, Finance Bill.

Dr. Marek: My hon. Friend has, in part, made my speech for me. I shall not comment further on what he said or I would be out of order. The Chief Secretary said, I am sure sincerely, that he was unable to give an estimate of how much additional money would stay outside the Treasury's net as a result of the capital gains tax changes. Because the amendments to make those changes were tabled so late, we have had no real chance to form an opinion, and that is a major reason why the Opposition voted against them.
We have had this year a Budget for the rich. It is not designed to benefit the unemployed, single-parent families, pensioners or the disabled. Much of the Finance Bill is concerned with tax reliefs and incentives for a small minority of people. However, it does not do as much damage in that it does not go as far down that road as last year's Budget. Nevertheless, it takes a similar line and,

because of that, I should like to vote against the Bill. But the hour is late and chances are that many hon. Members have gone away to sleep.
Opposition Members do not like the Budget and we would not have introduced such measures had we been in office. I am sure that within two years there will be a radical change in Budgets. Members of the present Administration will be sitting on the Opposition Benches and the Labour party will be producing its first Budget. I am confident that that will happen. Britain has almost been ruined under this Government. The Labour party will save it within two years.

Mr. Campbell-Savours: It seems that the House is most eager to hear what I have to say! Therefore, I shall speak briefly, although bluntly and to the point. The measure of the Budget is the assessment of it in my constituency by industrialists, trade unionists and the general public. Over the past five years, industrialists in the northern region, especially in the Workington constituency, have had what can only be described as a hell of a time. Throughout my constituency, factories have been emptied; whole industrial estates have been laid bare; new plants, opened under Labour in the 1960s, have been shut; and the 3,000 jobs created under Labour Administrations in the 1970s have been wiped out in net terms.

Dr. Marek: I apologise to my hon. Friend for interrupting him when he is referring to a serious set of statistics. I hope that he will not forget the extra 50 or so redundancies at Cinzano that the Government have declared tonight.

Mr. Campbell-Savours: I am glad that my hon. Friend said that the Government had "declared" those redundancies, because that reflects precisely my constituents' feelings about the loss of large manufacturing units in west Cumbria. They blame the Government.
The people, many of whom voted Conservative in 1979 and 1983 increasingly recognise that the Budget has failed to meet their expectations of what would come about with the election of a Conservative Government. In Brecon and Radnor a couple of weeks ago, I found that wherever I knocked on the doors, the people were talking about the uncaring nature of Government policy. I was stunned by their knowledge of the contents of the Finance Bill. They identified the Budget's deficiencies. They saw it not as a Budget for jobs, as the Government had presented it, but as a Budget for unemployment, and they were right. Every one who watches the Friday morning BBC programme and examines the net—

Dr. Marek: It is not only a Budget for unemployment. The national insurance changes mean that it is a Budget for low wages for those in employment. It is a doubly damaging Budget.

Mr. Campbell-Savours: My hon. Friend is absolutely right. We all know that the Government intend to farce wages down in many sectors of the economy. The argument about market forces placing pressure on wages is deployed only to reduce the wages in the regions, especially in areas such as mine in west Cumbria. We reject that approach. People in the north of England who have always voted Conservative also reject it, because


they believe that it is unfair. They do not believe that people's lives should be played with as this Government have done in successive Finance Bills.
My constituents wanted a Budget that would open new factories, increase demand, stem the flow of imports, create new jobs, increase wages, raise living standards and fund additional social services and public provision generally. They have seen the reverse. Those things will not happen this year, and, if what the Chancellor said last Sunday is to be taken at face value, not even the Brecon and Radnor by-election result will change the course that the Government have set for themselves. The Opposition can only appeal for a re-examination of what is happening and a re-examination of the Government's future policy. Unless the Government move on that important front, all we can see is more and more misery in our constituencies.

Dr. Marek: This will be my last intervention, but my hon. Friend has made an important point.

Mr. Deputy Speaker: Order. I should be grateful if the hon. Member would address the Chair rather than present his back to me.

Dr. Marek: I apologise, Mr. Deputy Speaker. My hon. Friend made an important point because this Administration have been in office and presented Budgets for six years. This Finance Bill contains nothing new. The Government are caught up in their policy of trying to bring down inflation, which they see as their first priority, maintaining high interest rates and cutting public expenditure. They are caught within their economic dogma. Their Budgets cannot therefore be any different. On reflection, it is what many of us expected. Will my hon. Friend argue for them to break out of their straitjacket, admit that their policies are failing and have new economic policies and a new Finance Bill?

Mr. Deputy Speaker: Order. I hope that hon. Members will not start talking about a new Finance Bill. One Finance Bill at a time is sufficient. Let us discuss the one that is before the House.

Mr. Campbell-Savours: We are discussing a Finance Bill that was rejected by a number of Conservative Members. They said that the Bill was inadequate and asked for reflation. That is my case.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

Orders of the Day — Unemployment (Isle of Wight)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Neubert.]

Mr. Stephen Ross: I feel that in some ways I could have continued the Third Reading of the Finance Bill, because, although I have crossed swords with the hon. Member for Workington (Mr. Campbell-Savours) on many occasions, I agreed entirely with the remarks that he made. I intend to make somewhat similar remarks.
I want to talk about the problems of the continuing rise in unemployment on the Isle of Wight. I welcome the fact that the Under-Secretary of State for Employment, the hon. Member for Eltham (Mr. Bottomley), who has suffered as I have until this late hour, is here to reply because, as is well known, he and his wife, the hon. Member for Surrey, South-West (Mrs. Bottomley), know my constituency and its problems well.
As the Minister will be aware, the Isle of Wight has consistently sought assisted area status. The local authorities helped by local businesses, made what they thought was an especially strong case only last autumn.
As predicted then, unemployment has continued to rise and it reached a peak of 17·3 per cent. in February this year. Since 1980, over 3,000 jobs have been lost in manufacturing in my constituency, and at the same time the tourist trade upon which we rely has fallen by about 25 per cent.
On the industrial front, the long-term trends have shown a continuing decline. More men and women were out of work in June this year than in 1984. That is when we are approaching the height of the season, when the rate decreases for about three months. It is currently — I know that this will be pushed back at me — running at 12·1 per cent. which is below the national average but still much higher than the average for the south-east as a whole. We have the highest unemployment in the south of England.
Last winter, male unemployment in Ryde reached 26·7 per cent. and in Shanklin it was no less than 32·4 per cent. Those figures are reminiscent of Northern Ireland and no one should be complacent about them. Worse is about to descend upon us, because on or about 16 August 160 more jobs will go at Fibre Resin Developments in East Cowes when the firm closes its doors, despite a full order book, mostly from television manufacturers and the motor industry. I quote from the Portsmouth Evening News of 3 July last:
160 lose jobs as buy-out collapses
Hopes of a jobs lifeline for a doomed Isle of Wight factory have been dashed.
The management of Fibre Resin Developments, of East Cowes, has confirmed that hopes of buying-out the plant have vanished and it will close next month with the loss of 160 jobs.
While Fibre Resin had a healthy order book its parent company, the Unitech Group of Reading, claimed fierce competition ruled out profit in the production of moulded components, particularly for televisions.
I understand there is only one other manufacturer of these products in the United Kingdom. The article goes on:
Fibre Resin Managing Director, Mr. John Hand, and colleagues originally hoped they could find a way of turning the work into profits but now say there is only the possibility of a venture that would provide work for 'a few' employees.


They ruled out the possibility of a management takeover for the same reasons that the parent company decided to pull out of the Island — high transport costs and less demand for some of the company's TV products.
A company which is not Isle of Wight-based but which is a subsidiary of a larger company, either American or United Kingdom, and which operates on an offshore island, when it retracts, looks to see what plant it has in diverse areas of the country, particularly an offshore island, and we always suffer. To bring component parts or basic materials to the island and take them back again to the mainland costs a great deal of money. It costs something like £100 for each vehicle that comes across from the mainland.
To add insult to injury, the Desmond Norman aeroplane company is moving its base from Sandown airport to Cardiff with the aid of loans totalling £2·3 million, including £500,000, subscribed in ordinary preference shares, from the Welsh Development Agency. I note from last Friday's Financial Times that the agency is claiming that it has built a portfolio of around £27 million and by the end of this year it expects this will have risen to between £37 million and £40 million, invested in industrial concerns of one sort or another. Desmond Norman will, in the process, increase his current work force to about 134.
I am sure the Minister must agree with me when I say that we could have done with such a boost. We cannot offer the Desmond Norman's of this world attractive terms of that dimension. We wish him well. We are sorry to lose him, but we feel bitter about his departure, particularly as the skills are undoubtedly available to him on the Isle of Wight. The Firecracker, which we all know was one of the competitors for the replacement of the jet Provost, was designed and built on the Isle of Wight. Desmond Norman is well known as the designer, with John Britten, of the original Islander aircraft, the first 240 of which were built mostly by the British Hovercraft Corporation, but built on the island. On that self-same airfield, Mr. Richard Noble, the holder of the world land speed record, is also constructing a small plane and the county council, along with the Development Commission, have given him financial backing. But will it be enough? The aid that we have been able to provide pales into insignificance compared with the Welsh package for Desmond Norman. One can anticipate what Mr. Noble must be thinking as he sees his competitor on the other side of the airfield picking up such a large sum. It makes nonsense of the current assisted area designation.
As a member of the Select Committee on Transport, I know that marine pilotage is also under review. Some 28 of such pilots live on the islands, and some of their jobs could be in jeopardy. I could go on. The future, despite our efforts, which I believe to be praiseworthy — the Minister may confirm that, and his colleague, the Minister for Information Technology, who was on the island only last Monday thought so — is not bright. We have tried our best through both local government and local businesses to improve the position, but nevertheless, we seem to be losing.
I have only to finish by mentioning Westland, and its subsidiary, the British Hovercraft Corporation, to give an illustration of another firm that is causing us some concern. That company is our biggest industrial employer, and, as we know, is going through a difficult patch. I shall

not say more, because the subject was duly aired only last Monday, but the importance of BHC to the economy of the Isle of Wight cannot be over-emphasised.
We long ago came to the conclusion that tourism and leisure are our natural growth areas, but to make this a reality, we desperately need a carrot to offer the specialist investors. Small grants from the English Tourist Board to hoteliers and others are greatly to be welcomed, but the seaside resorts of Ventnor, Shanklin, Sandown, Ryde and the sailing centre of Cowes need much more than that.
I have to return to the Principality, because when we look at what is given to places such as Rhyl and Cardiff through the EEC, we are made envious. No completely new hotel has been built in my constituency since the war. While we now have some excellent leisure centres, one or more must become of national importance if our summer season is to be substantially extended.
Cowes was again this year the home of the prestigious Admirals cup racing, but it particularly needs to upgrade its shore facilities. Representations on this subject have been made to me by senior officials in yachting, and I know that it is true. We must try to get developers with experience in leisure to take an interest in the island and invest there, but to do so we have to be able to offer them some encouragement. They will not come unless there is a carrot. Last year, our rate support grant settlement was the worst of any in the country, so local Government has even less room for manoeuvre than before.
Some will say that I have said all this before and made little progress, so why do I go on about it? The answer is, "What else can I do?" Politics is the art of the possible, and it is perhaps true that if one says the same thing often enough and long enough—I have learnt that in politics one has to go on saying the same thing over and again, however boring it may be—it will eventually attract the attention of somebody who matters. I am putting down another marker on behalf of my constituents. I hope that the Under-Secretary will do all that he can to persuade his colleague of the urgency of cur case, and the need for a more sympathetic approach to our economic well-being.

The Under-Secretary of State for Employment (Mr. Peter Bottomley): I welcome the opportunity to listen to the hon. Member for Isle of Wight (Mr. Ross). I take seriously his final remarks about the need for persistence, and about politics as a process. If any Minister responded to the case that he outlined with a pat answer, that would do politics a disservice. I am talking not about party politics, but about the natural process of politics, which is that matters are raised in the House, through deputations and to Ministers when they visit constituencies such as the Isle of Wight. It helps to develop Government policy and approach, not only to legislation, but to other things that the Government can do, such as transferring money from one set of pockets to another. The hon. Gentleman referred to some of the incentives in Wales. Like the hon. Member, I would have liked this debate to take place earlier in the evening. I do not agree with him that the remarks of the hon. Member for Workington (Mr. Campbell-Savours) were that germane to the previous debate or to this one.
The hon. Gentleman mentioned the Admirals Cup. Perhaps it is a good omen for Britain and the Isle of Wight that one of the competing yachts was called Rubber Duck and has been re-named Phoenix. The House will recognise the efforts the hon. Gentleman has put into his


constituency. Perhaps what is needed for the Isle of Wight is a resurgence of what was achieved in the early 1970s in a slightly different economic climate, when the manufacturing base expanded. It expanded because small and medium-sized firms came to the Isle of Wight. They came there for the sort of reasons outlined in the county council's case, which it put forward last year for assisted area status. It talked about the kind of people on the Isle of Wight and the kinds of skills they have. I should like to refer the House to the biography of Uffa Fox. During his early life he changed from one job to another, and that shows the sort of adaptability that is characteristic of the Isle of Wight.
In these summer months of July and August, it is important not only to talk about the unemployment in the area, but to talk about the good sides of the island. The hon. Gentleman courteously referred to the links that my hon. Friend the Member for Surrey, South-West (Mrs. Bottomley) and I have with his constituency. The numbers of people who read the County Press and the other newspaper in the Isle of Wight grow enormously during July and August. I hope that the headlines following this debate and other headlines which will appear in the island's newspapers during the weeks when Cowes is full of people who may be able to bring in investment into the island, will be about the adaptability of the work force in the Isle of Wight, about the successes of the Isle of Wight's schools and the kind of environment that makes people very keen to live there if they could find jobs. I hope they do not just talk about the difficulties of transportation and use the word peripherality, which is somewhat new to me. Perhaps we could look at the Isle of Wight as the place it could become, the Silicon Island of Britain. People talk about Silicon Glen and about the high-tech corridors down the M4. There are many products connected with new technology where transport costs become less significant, and where the attractions of a place like the Isle of Wight can get people not only to build their own firms there, but to put into the island some of the manufacturing and development and design processes that are so important to the modern industry of the future.
Employment in the island rests on what used to be called the three legs, but I suppose that there are actually five. The traditional ones are tourism, light industry and agriculture and fishing. To those I would add the two greatest areas of employment, which are public administration and retail distribution. It is worth noting that many of the developments in the area have made it possible for more people to do their shopping on the island. They do not have to go to Portsmouth or Southampton for that purpose. I will not answer the hon. Gentleman in detail on the pattern of unemployment during the year, because it is obvious to anyone who knows the island that it suffers severe unemployment during the winter months, and the reduction to below the national average during the summer is a seasonal trend.
I will pass on to my right hon. Friends in Government some of the points which are more properly directed to them. As one example of politics being not only the art of the possible but the art of making possible what is right, may I say how much I welcomed the response from the Isle of Wight county council to the Government's White Paper last year on changes in regional aid and assistance, gearing much more to job creation, extending aid to include parts

of the service sector as well as manufacturing, trying to go for increased selectivity and a review of the assisted area maps. As the hon. Gentleman pointed out, the Isle of Wight has not been successful in getting its application approved in this process. As he and I know, politics is a moving business, and the representations made by the county council are important. Having had the chance of looking at the video film that was shown to my hon. Friend the Minister for Information Technology, I know that the Isle of Wight does manage to demonstrate many of the things that make it attractive not only in a physical sense but in a manufacturing sense. It is for that reason that the island boasts, even with the intended move of the manufacturing of NDN planes to Wales, more aircraft manufacturing businesses than almost the whole of the rest of the country put together. That shows that there are people on the island, most of them who have been there for a long time but some who have come in, who believe that it is a place where they can get their acts together and start developing their own businesses.
I add my weight, for what it is worth, to the efforts of the Isle of Wight tourist board which manages—much of the money being raised on the island — to have a budget larger than the Southern tourist board which covers a far wider area. I know from personal experience how much many of the people involved in the hotel, catering and tourist industry put in to promoting the Isle of Wight. There is much more that they can do, and my right hon. Friend the Minister without Portfolio, whose portfolio, if it does not sound too paradoxical, includes looking at tourism, will be coming forward with plans and proposals and he has been providing a focus for Government efforts, because the development of this side of the service sector is extremely important to the Isle of Wight.
As for the Development Commission, the hon. Gentleman said characteristically that rural development area status for the Isle of Wight had been important. It is also worth recognising that the island can go further. Without straying into the areas of responsibility of the local authorities on the island, I may say that it is worth people thinking whether they are always gearing their decisions towards the promotion of employment and tourism as much as they might. I am not an expert, but I recall an example two years ago of a proposed hotel development in Cowes which, it was said in public though there may have been other reasons, could not go ahead because inadequate car parking spaces had been provided. If much of the hotel accommodation needed in Cowes is tied to yachting, many people may be arriving by boat and wanting to sleep on land, and they will not bring their cars stuck on the fronts of their Admirals Cup yachts.

Mr. Stephen Ross: There were other reasons why that proposal did not meet with everyone's approval.

Mr. Bottomley: I am sure that is right. I used that as an example of how people not only can ask the Government to reconsider how they can help but can continue themselves to look for an environment for the promotion of tourism and industry.
I quote from the Isle of Wight's case for assisted area status. It says on page 14:
Within the broader national policies for encouraging industrial development there is scope at the local level to further these aims. The Isle of Wight County Structure Plan, as approved by the Secretary of State in March 1979, laid particular emphasis on the need to increase employment opportunities. The County Council, in conjunction with the Borough Councils, the


Development Commission and CoSIRA, have been vigorously implementing the strategic employment policies through land-use planning, the active promotion and encouragement of industry and the provision of sites and buildings and also by establishing a single centre for advisory services to small firms.
I do not think that anyone would claim that people on the Isle of Wight are not doing the best they can, and I know from my own experience that both in the voluntary sector and at the local authority level people do their best to work together and, while having occasional differences of politics, dedicate themselves to the wellbeing of the Isle of Wight. It is one of the advantages of being a self-contained unit that people actually live and work in the same place rather than the difficulties faced in so many other constituencies where some of those involved live some way away from where they work.
The Development Commission has helped by funding a number of projects on the island, including an imaginative project to bring Souter's boatyard at Cowes back into productive use with a potential to accommodate more than 400 jobs. The commission, with the local authority, is also preparing a rural development programme for the Isle of Wight, which will offer a way to co-ordinate local and Government assistance to the island during the next 10 years. The hon. Gentleman referred to rate support grant. One of the areas in which the Isle of Wight has done better than other areas, has been transport grants. The island has had some of its special needs recognised, which I hope is welcomed there.
I pay tribute to the work done by CoSIRA, which works closely with the island's enterprise agency. During the past 12 months it has helped 21 firms to obtain more than £1 million in loans, and has done much to support community development. On the wider scale of the European social fund, a welcome recent development is granting the island priority status for support for training and employment schemes from 1 January 1986. Now many more types of scheme can receive funding than previously. The Department of Employment has already made contact with the Isle of Wight County Council about that. I hope that the Council and other organisations can make applications to, and benefit from that fund.
I am not saying that sufficient has been achieved, but many of the developments that the Government have been promoting are of assistance in the Isle of Wight and throughout the country. The enterprise allowance scheme helps people who have been on benefit for some time to set up in business. It is a powerful stimulant to the creation of new small businesses, and I recommend anyone who has been on benefit or under notice of redundancy for some time—if a person has been on benefit for 13 weeks, he or she will qualify if he or she can show £1,000 of his or her own, or access to that sum — to apply for that scheme, under which he or she can receive an allowance of £40 a week for a year. Our experience shows that 75 per cent. of businesses set up under the scheme still exist 15 months after they started — that is, after the allowance has run out—and that more than half of them have created jobs, not all full-time jobs, for others. Sixty jobs for every 100 businesses operating after 15 months shows that a great well of enterprise is waiting to be tapped. The enterprise allowance scheme is one way of doing that.
The scheme has been expanded by a further 25 per cent., and the Isle of Wight will share in the extra places being made available. Examples of the scheme from the

island include hand-made pottery, windsurfing promotion, the sale of second-hand classical records, a magician, a successful tea room and a hairdresser. I am not suggesting that everyone should compete in those fields, but that shows the range and breadth of ideas being brought forward.
The hon. Gentleman does not need me to talk about the youth training scheme. It is vital that young people, who are important to the Isle of Wight, are not forced to emigrate, but can build up their skills and work experience on the island, and be available to take jobs that become available. YTS provides a rung on the employment ladder. The developing quality training will help them, as will the move towards a two-year YTS. It is pleasing that last year 70 per cent. of those leaving YTS on the island went into jobs. Our experience throughout the country shows that it is a valuable way for people to build up their experience and ability to be employed. The same sort of story cart be told about adult training.
The community programme provides special help to the long-term unemployed. When the House goes into summer recess I shall visit the Isle of Wight to follow up some of the hon. Gentleman's remarks and for my own pleasure and education. I shall do my best to promote some of the ideas to which I have referred when meeting people on the island. I shall do what I can to encourage the advertising of the island, especially during the peak summer months. It seems ridiculous that so many people, when they have the chance, go shooting off abroad for their holidays when the range of pursuits for families on the Isle of Wight is so great and the attractions so well known. There is net immigration to the island of those aged 50 years and over, and if the island is attractive to members of that age group, many of whom are returning to the island after a working life away, it should be attractive to those who have the opportunity of taking a business to it or developing a business while there.
None of this is to deny the possibility that some of the aid that the Government provide to other areas is harming the Isle of Wight. Much of the diversion of public revenues to special assistance in certain areas costs jobs because of the nature of taxation and tends to divert jobs. The hon. Member has rightly drawn attention to an example that may be of benefit to Wales, but may be of harm to the Isle of Wight.
I recognise the points that he made briefly tonight but at greater length two nights ago about the possible impact on the island of developments at Westland. I pay tribute to the staff of BHC for the way in which it has helped to diversify the work that it has managed to achieve and its order book. I hope that the company will prosper and that its example will help others to do the same.
I recognise the importance of what the hon. Gentleman said at the beginning of his speech. I attach importance also to my initial comments. The hon. Gentleman has asked that his arguments be considered properly and I shall do that within Government. I hope that it will be possible in a year's time to have a similar debate so that we can discuss some of the successes as well as some of the problems that remain to be tackled successfully. The Government will do the best that they can on the Isle of Wight and throughout the


country to raise the levels of employment and economic activity and to ensure that we represent the people whom we are here to serve in the best way possible.

Question put and agreed to.

Adjourned accordingly at three minutes to Two o' clock.